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

So welcome, everyone. My name is Gaby Carbone, and I cover U.S. retail here at Deutsche Bank. We are very happy to be hosting Skechers today at our DbAccess Global Consumer Conference. So Skechers is a $7 billion market cap, a global footwear company with approximately 4,000 stores across more than 170 countries. Skechers has approximately $4.5 billion in sales with about 42% in the U.S. in 2020, with the remainder coming from international markets. So joining us today is Skecher's CFO, John Vandemore. John joined the company in 2007, oversees all Skechers financial policies and has more than 2 decades of business finance experience. Welcome, John, and thanks for joining us today.

Thanks for having us, Gaby. We really appreciate it.

Of course. So today's session will be a Q&A fireside chat. We will also try to squeeze any questions from investors who are listening to the webcast. You should be able to see a Q&A box on your screen. So if you have any questions please go ahead and type those in throughout the webcast. So John, I'm going to turn it over to you to kick off with some opening comments, and then we'll go right into Q&A.

Well, thank you, Gaby. As I said, thank you for having us here. We appreciate the opportunity to speak with you all to explain a little bit about our story, which we think is unique within footwear and apparel, and also incredibly exciting given the growth trajectory of our brand, both in our domestic markets here in U.S., but also probably more importantly, internationally, where -- as Gaby mentioned, we derive more than half of our sales and actually foresee fantastic growth opportunities for our brand now and to the long future. So we're excited to share more about our story. Would love to answer any questions you all have. I'll turn it over to Gaby to start.

Yes. Thank you so much for that introduction. So I'm going to start with some bigger picture questions. When it comes to product, what set Skechers apart from competitors? Your broad assortment has certainly been an advantage. And then how do you view your position in the footwear market? And has COVID changed your position at all?

Well, let me first say, we are a product-first company. We live and breathe products every day, no matter where you are in the business. And I think our product teams do a fantastic job of delivering, what we see as 4 key promises to the consumer. And we use these pretty regularly because they span the globe in importance. Those 4 things are we look to focus on style, comfort, quality, all at a reasonable deliberate price to the consumer. And those really define how we think about our product. We're not trying to be the premium player in every market. We're trying to deliver on those core elements to the consumer. We find that no matter what market we're talking about, those core, some combination of them, resonate strongly with consumers. And we think that's important to keep in mind. It's certainly not to the exclusion of the importance of what other brands can deliver. But we think Skechers uniquely delivers on those for. One of the biggest and most important above all else in that repertoire for us is comfort. When we do our scans and our surveys of consumers, what we see almost universally is that people appreciate the comfort that Skechers footwear delivers to them. And I think that's important because it not only transcends geographies, it's characteristic that can be incorporated in a broad array of categories, as you mentioned. We have a very diverse product portfolio. But incorporated into each of those is those 4 characteristics and keep among them comfort. And we've had a lot of success on that. I think it's dovetailed quite frankly, very nicely, with many of the features consumers were looking for in the midst of the pandemic, but we don't think it's limited to that. We know that as a general trend, as footwear casualizes across the globe, people appreciate the benefits of comfort more and more. And we appreciate what it takes to deliver on that comfort more than I think any other brand. And we believe those are enduring. They're not just pandemic influence trends. Rather, they are trends that will continue. Also, as people focus more and more on health and wellness. I think the reality is people understand that having uncomfortable footwear. You've ever traced across the Metropolitan of New York doing a road show you know that having uncomfortable footwear is not good by about midmorning. And so being able to deliver product across a broad spectrum of categories that delivers on comfort and each of those is important. And we also find our positioning relative to others providing what we view as, quite frankly, to use a boxing phrase, "pound for pound", the best product out there at our prices, we think is important at the consumer level. It provides for us an addressable market that we think is as big or bigger than any other in the footwear and apparel space. It provides a lot of latitude when you look to other markets where purchasing power parity is not exactly what it is in the United States. And that gives us a lot of flexibility to deal with the opportunities we see in many markets. I would also note, we compete against a lot of different brands. Many people ask, who's your chief competitor? And the reality is our competitor is often 1 or 2 distinct players per category. We're not always competing against the top-tier brands in every category. Some we are, absolutely. I think in those, we compete very well and very effectively. But in others, like in footwear for workers or tactical workers, for hospital workers, it's a different subset of competitors. So we're also, when competing, competing against a diverse array of other parties. And I think that's one thing we do very well. We're adaptable and flexible on how we go to market, how we compete against other brands and have been doing so successfully for quite a long period of time and quite a lot of different markets. And I think that's developed within as a core capability to be able to make Skechers relevant in a variety of geographies and a variety of categories in footwear.

Great. Thank you for that. Staying on the topic of product. Are there any new product innovations or collaborations that are launching this year that you're most excited about? And then if you could just touch on the opportunity, maybe outside of footwear, so apparel, I feel like that's been a newer category for Skechers. So how are you thinking about the expansion there?

Well, I'm extremely excited about the products we have. And some of those coming that, quite frankly, I'm not at liberty to discuss here. But what I would say, I'm most excited about is our focus on, as I mentioned before, infusing solutions, technology solutions into our product across our portfolio that can transcend any one given style. And I think a great example of that is our recent introduction of Arch Fit. So a little more support in the foot, a little more pronounced arch support, but a characteristic we can deliver across multiple categories of our footwear. So it can be presently in a walking solution, in a work solution and it can even be present in a sandal. And what we're finding is it certainly addresses a need in the market, but that multifaceted approach to deploying that technology is resonating really well with consumers. If they enjoy the Arch Fit product, it supports their arch and delivers for them greater comfort, they can find it and search it in sandals for the summer, in work footwear, in golf, whatever the case may be. And I think that's a unique proposition in footwear to be able to have technology infusing multiple categories simultaneously and not just specific to one subcategory. There are many other examples to that. But I think it's a very clear example of how we've taken comfort technology as a company and infused it in a lot of different categories, while still delivering on style and value to the consumer that is appreciated. Absolutely, I think apparel is another solution. We will continue to expand in our portfolio. Quite frankly, in some markets, it's actually probably more progressed than folks who realized, some international markets where it's a critical point of selling to have an apparel solution. And I think what you can expect over time is that we will continue to build that out and deliver that globally because we think the brand certainly has the opportunity to deliver on that to consumers. We just want to make sure and have time wanted to make sure that what we bring to our consumers is true to those same core characteristics in apparel as much as they are in footwear. And what you're seeing now as we further develop our strategy to increase our direct-to-consumer penetration is that we're even designing our solutions both online and in our retail footprint to provide a meaningful apparel offering, which hasn't always been the case. Traditional footwear planning would not have accommodated some of the requirements for apparel. And as we see our store fleet mature into bigger box neighborhood stores that offer both the wide array of footwear categories that we are known for, also are complemented by allowing for a presence in accessories and apparel that we think is very exciting long term. It's still early stages, still a lot we need to do there, but we're very excited about both what we're currently delivering and what we plan to bring to market, both here and across the globe.

Got it. And so moving on to the top line now. So pre-pandemic, Skechers had achieved an impressive 70% top line 5-year CAGR. How do you view the opportunity to return that level of growth? And if you can walk the audience through the building blocks to get there, that would be great?

Sure. I mean the first necessity though is we need to get past this pandemic. And the good news is when we're seeing markets fully reopen, when we're seeing restrictions imposed by either health authorities or governments relaxed and ultimately removed, we're seeing very good consumer response. Quite frankly, even a bit better than we had anticipated. The key issue though is that's not a condition that's prevalent everywhere in the world today. It's starting, and we're seeing good progress toward that, but I can't say today that every market is equally open. What I can say, which again is the most encouraging aspect, is where they are, this brand is performing extremely well. Once we get past these issues with the pandemic, we fully expect to be back to a growth trajectory that's similar, if quite frankly, not a little bit better than what we had seen coming out of '18 and '19. That's strong growth in international markets, probably a high-teens level growth, if not a little bit higher in some instances, coupled with continued growth in our direct-to-consumer business, that we think is easily kind of a mid-teens level on average, but ebbing and flowing depending on openings and the growth in our online capabilities. And what we're probably most excited about is we've seen very good trends in our domestic wholesale channel, and that's been a market certainly that's been impacted by a rash of both store closures and other issues over the last couple of years. And we're seeing good trajectory there. I think that bodes well for the long-term health of that market. I think it bodes well for the health of the stores and the retailers who have survived the retail attrition that's taken place over the last couple of years. And we've long been convinced that once you get past some of that attrition, what will emerge is a stronger, reliable, albeit probably slightly slower growth marketplace, but one that isn't as challenged by retailers coming in and out, the effects of that on the overall retail environment as well as those specific doors being absent from the market. So we've got all that up. I mean it's really, quite frankly, a continuing strategy and a bit more of the same, which I know is sometimes not as exciting, but it's growing internationally, it's growing our direct-to-consumer channel, it's continuing to harvest what we can in the domestic wholesale business and continuing to support good partners who support our brand there, which is something we will continue to do, and I know others have decided to walk away from. But we still think there's value in delivering product to consumers in multiple channels, where they want it, when they want it, how they want it because most important to us is at the end of the day, that consumer is putting on a pair of Skechers. And so we want to make sure we avail them of the greatest number of opportunities to do that. That still reinforce the delivery of the brand promise.

Got it. And so you could just say, consumer wanted to ask about e-commerce, which obviously, you put a lot of time into especially given the pandemic and the consumer behavior shift. So within your own retail channel, where do you believe e-commerce penetration can go? And how far long is Skechers in its digital and omnichannel efforts?

Well, first thing I'd say is I couldn't be more thrilled with what we've done over the last 2 to 3 years in e-commerce. Admittedly, I think we were a little bit late getting into kind of the full swing of deploying our assets in the e-commerce environment. But the team we've built in digital, the changes they've made to the technology stack to delivering the consumer experience requisite in today's online world has been phenomenal. And we couldn't be more pleased with that. We don't really like to think about it in terms of penetration, although we certainly talk about those figures because ultimately, what we're trying to deliver is a solution that satisfies consumer needs. And -- when I go to the store, I don't think I'm going to the store to buy X or Y at that store. I just know I have a need for the product, I have a desire to purchase it, and I'm looking for the lowest friction opportunity that meshes with those desires. And that's really what we're aiming to deliver on. And we want it to be as seamless to a consumer as possible, whether they choose tracing down to the store and searching for a product that suits them at a given point in time or ordering something advanced because they're about ready to embark on a golf trip and they need most comfortable golf shoes out there. All the way through to some combination thereof because that's what we're focused on delivering is a true seamless omnichannel solution for consumers that leverages technology, leverages our physical store plan, leverages features like loyalty and others that can be delivered in a very effective way online, and then ultimately building a closer and closer relationship with those consumers. So that we know the type of product they want and need. We know about when they need it. We know more about them so we can both market to them more effectively, but also solve their footwear needs more effectively. Over time, I think that absolutely will necessitate a greater proportion of our sales being digital only or digital first. But we also don't want to create an artificial differentiation either internally or in the market between that because right now, they're certainly equally profitable transactions for us. And more so when we get a consumer into the pair of shoes and then into our loyalty program, we know the LTV of that consumer skyrocket. So that's really what we're trying to do. We've done a lot of work. Still more to go. We've done a lot of work over a short period of time. I think that enabled us to capture a significant acceleration in e-commerce and platform growth over the last probably 18 months. But it's also the springboard for us for a future of really e-tail that combines the best of what we can offer in stores with the best of what we can do online in a truly seamless way. And then ultimately, to take that globally. I mean I think many folks focused on the progress we've made in the U.S. in a digital solutioning, in markets like China where clearly they're well along that journey. But keep in mind, there's a lot of other markets out there where the digital evolution is just beginning. And what we're equally excited about is as much catch up speed as we've employed in the U.S. We're now at the beginning of the curve in many of those markets. So as we seek to roll out digital solutions across the globe, which is something we're actively working on, we think that positions Skechers well to be at the leading edge of omnichannel and digital delivery in a lot of other markets across the globe.

Got it. So just a quick follow-up there, which you briefly mentioned. How does increasing e-commerce penetration kind of impact your overall margin structure?

Well, right now, it's actually -- it's an accretive contributor to our overall margins. Now to be fair, we've been taking mostly a focal point on in-line product and kind of our top-tier product in that solution. I still think for the short term, that's likely. And there may be some slight erosion in those margins, but not to the point where we think that they're in any way decretive to either our overall direct-to-consumer profile or the company's profile. So we spend a lot of time making sure that what we're delivering, we're delivering with profit. That's good. We don't want it to be an artificial hindrance to growing the brand. But so far, it hasn't been. And I think, again, more importantly, it's about being in complement to the overall consumer experience, including our stores. So we're actually very happy with the margin profile we're seeing. We probably give a little to get a lot more, which you think is certainly a possibility. But all throughout, we'll make sure it continues to contribute profitably to what we're delivering as a company. I would also note that that's actually well before. We've also looked at opportunities to further accrete what we are delivering. One of the things that we will ultimately look at as a company is leveraging our store fleet to cut down on last mile delivery, both friction and costs. And that's really not even something we've scratched the surface on now. We've been so focused, and we continue to be focused on delivering at the consumer level. We haven't yet turned our attention to where we can really rationalize some of that last mile friction. But when we do, we know that there will be opportunities to gain further efficiencies and actually then even make that margin a little bit more accretive to the company.

Got it. Thank you for that color. So maybe kind of moving on to international, which you just spoke about briefly. It represents over 50% of your sales, very big pieces of business. Kind of how do you view the opportunity for future growth? And then on China, which has been a very strong and growing market for you, I was wondering if you could discuss the opportunity there? And maybe where you would rank the Skechers brand awareness in the region? And how much opportunity there is to still build there?

Yes. But let me apologize first. Whenever we're asked this question of what's the most attractive international market, we can't help with Skechers to go through every single market because it's almost a truism here that we see opportunity in a lot of different places. I mean obviously, there's markets that are accelerating for many brands, markets like China that have done exceedingly well for us. But when we step back and we look at the growth we have experienced, in particular, over the last couple of years, I mean it's included highly developed markets in Western Europe. It's included nascent markets in Eastern Europe. It's included India, which for us has tremendous long-term opportunity and actually is one of the markets where we feel we're close to going toe to toe with any brand and have had a great trajectory of growth behind our efforts there. So I would say we actually look across the globe and are excited ultimately about the wide array of opportunities we have, I mean from a dollar perspective. Certainly, China continues to be the bellwether for us in the model country. It's done exceptionally well and still has, we think, a lot of runway. Some of that's going to be in physical retail, locally there. A lot -- probably more of it is going to be in the combination of e-commerce and physical retail. We've seen omnichannel really accelerate in that market in addition to just the core growth in e-commerce, particularly around those key selling days like 11/11, 6/18 and others that have crept up over time. You combine that with kind of the rising power of discretionary spend among the middle class in that market and -- you can see a long, long runway for continued robust growth in that market. But the balance of Southeast Asia for us is equally exciting. There's markets that are relatively untapped for us like Thailand, Vietnam, others that we still see significant opportunities for growth in, Indonesia, Malaysia, the Philippines. Those are very exciting. I touched on India, that's one we think is certainly stands the opportunity to potentially become another China, although it's certainly going to take time. And we couldn't be more impressed than what we've seen in the execution of our team locally there. As they get past this second wave effect, we're eager to continue growing that market at the rate we think it can sustain because we've seen a lot of the core characteristics very similar there to what we've seen in other high-growth markets like China. But I would equally throw into that hat South America. We have a very strong foundation in Chile, but we're seeing very good traction in a lot of other very productive markets for us. We know the brand resonates on the continent as a whole, and we see it as a very strong player for the future. And then I'd be remiss if I didn't throw in Europe. I know it sounds a little crazy. But Western Europe, Germany has been one of our fantastic growth drivers over the last couple of years, and that's a highly developed market there. We're bringing more product solutions to market, which is one reason for that. But we're also looking at Eastern Europe, where I would say the brand is still in very early stages of development, has a lot of opportunity. So with apologies for droning on. It is -- when we look across the globe, an incredibly exciting opportunity set in almost any region you look at. And I think the real challenge for us is how do we make sure that we take advantage to the utmost of as many of those as we can. And that's just by continuing to have a very keen focus on product, a very strong support structure for our local execution teams. But also, quite frankly, supporting them and addressing the market as they see fit. One of the other, I think, super power Skechers has is the ability to leverage local knowledge and expertise to maximum effect. And that goes along with being flexible as an organization to approach markets differently as the conditions warrant.

Got it. Yes, it's all very exciting on international front. So maybe just kind of focusing in on Europe, which has been a very important market for Skechers. It seems like things are improving in the region as COVID restrictions have loosened. Wondering if you could dig into what you're seeing in your European markets relative to the U.S.?

Well, we're certainly happy to see that Europe has begun the process of reopening. The early-stage feedback we're getting from the marketplace reopening where it has been very encouraging. I wouldn't say that everything is fully recovered at this stage. There are certainly some challenged areas of the business, most notably those that are dependent upon tourism and travel, which continues to be somewhat restricted in those marketplaces. But we're really happy to see, certainly in contrast to what we saw in Q1, the markets free up, consumers able to go out and shop. Where we have seen reopenings, we have been tremendously enthused by the, call it, pent-up demand, the excitement of people to just get out and shop, address their needs in footwear, in apparel and other areas, and just get back to a more normal performance level. I mean keep in mind, coming out of 2019, we saw very good characteristics for the brand in that marketplace. And so we see it somewhat as a continuation of that with an interlude offered by the pandemic. We're watching it carefully, though, because we're also mindful that the current environment is still rather volatile with regards to either regions or areas being impacted by the pandemic. As more people get vaccinated, as help generally returns to the marketplace. We're very optimistic about that what that means ultimately for our business.

Got it. So maybe moving on to margins. Skechers has shown great ability to manage inventory and achieved a 47.8% gross profit margin in 2020, which I believe was one of our strongest performances. Moving ahead, how do you kind of view the opportunity for gross margin expansion? And what are the drivers there?

Sure. Well, as our guidance suggests, we're a little bit sanguine about this year's overall result. We certainly don't see it deteriorating and it might improve slightly as we look back. But the other aspect of what we're seeing on the positive side, which includes very strong power on pricing for value, particularly in those comfort technologies I mentioned, we're really seeing consumers appreciate what those deliver and offer a willingness to pay us life premium for that, which has been very, very good to our product portfolio. I would also add to that, the general environment we're seeing from a discounting perspective, both competitively and in our own retail has been very encouraging. You've seen a lot less discounting. It's a lot less robust than it has been. No doubt in part equal to the lean inventories that we're observing across the spectrum. But also we think a very solid appreciation for the product being delivered. The offsets, though, are we are starting to see some input cost pressures. We've seen those both on the raw material side, but also extending through to channel deliveries, everything from container availability, the shipping lane availability and rates and port congestion. I mean we had a whole canal get blocked, which I don't think was on anybody's master plan. So there are some of those challenges that are materializing. We think the vast majority of them end up being transitory at the end of the day, but there are certainly some that are becoming a bit more pronounced. And we want to make sure that at the very least, we're sustaining our margins. And we think that's absolutely achievable. We've been able to extract value from a pricing perspective. We think that has been balanced in the sense that it's treating consumers well, treating retail partners well and obviously delivering for Skechers. And then the other thing I'd just mention is the mix of our business is certainly getting back to a more normalized sense. Last year was apparent in many ways, not the least of which was the mix of business that tilted much more heavily in certain periods toward direct-to-consumer or direct-to-consumer online, which carries a different margin structure for us.

Got it. So maybe kind of moving on to SG&A, which is always a hot topic with investors for you guys. You've made meaningful investments over the years, especially e-commerce, which we've spoken about. How are you thinking about SG&A dollar growth going forward? And what's your view around the potential to get back to 2019's EBIT margin of 9.9%?

Well, as we've said, beginning in 2021, we didn't expect for Skechers to get back to 2019 margins in this year. That's just a challenge offered by, in particular, the retail environment where we're not able without a return to normal operating conditions to fully leverage the fixed cost base within that business in the short term. Long term, we have no concerns about being able to replicate those operating margins. But in the short term, it's just difficult to adjust some of those fixed costs at a rate to measure with how quickly the top line environment has changed. Now I say that, but certainly, the first quarter was better than we had expected. And so we're eager to see how much more of that we can capture for the balance of the year. What I would say though, most importantly, is that our clear objective is to get back to 2019 levels, and then to continue to accrete the operating margin, as we said, as a part of our strategy over time. We've long talked about kind of a low teens range of kind of steady-state operating margins, with the only drag on that being investments in the future of the company, including incremental distribution, technology, as you mentioned; new stores, which will certainly be another focal point of ours as we start to emerge from the pandemic, albeit probably at lower levels than we've traditionally put up. The net effect of that, though, we feel is a return to '19. Hopefully, by 2022, earlier, if we can foster the type of growth we need on the retail side of things, but we certainly think within a 2-year frame, that's something we can accomplish. And then to move the operating margin above that as we continue to grow our presence as we continue to leverage our existing fixed cost base, and we see a recovery in that retail business. In terms of SG&A, what does that mean? Obviously, that means we want to keep the SG&A growth contained within at the upper bound, that top line growth rate in a lower bound, that which is necessary to continue to drive the business. Because you also have to keep in mind, some of our operating expenses are completely variable based on volumes. There's a lot. There's apparels. There's shipping in there for e-comm. So there are some components that naturally will ebb and flow with the top line base. We are making some investments, none of which I would call out as being extraordinarily material in any point in time to warrant specific call-out. But as you get an operating -- business up and running in a new market, that's going to be a short-term drag as you open a new store. In the first couple of months, it's certainly a short-term drag. As you open up distribution capacity, sometimes that too can be a short-term drag. But I think the key component of all those is that they're short term and that they allow for the company to continue to build the top line toward. What we hope ultimately is $10 billion or more.

Got it. So talking about the store growth, how are you thinking about the mix U.S. versus international concept first outlet? You mentioned that growth isn't going to be as robust kind of coming out of the pandemic. When if you could speak to that?

Sure. Well, like most companies, we took a pause during the pandemic. It's difficult to make long-term decisions on retail when it's still uncertain how long the current environment is going to last. What hasn't changed, though, is our focus on transitioning from more concept, mall-based offerings to more freestanding. We'll call them warehouse, big box, neighborhood stores that offer a fuller complement of our footwear product line as well as, as I mentioned earlier, apparel, accessories. That's going to continue to be our focal point domestically. We're finding those stores both perform better. They satisfy consumers better. They got a better rent profile and labor profile for us. They also, I think, represent a very interesting opportunity longer term to complement our omnichannel solutioning because they're bigger stores, they could be enabled to eradicate some of that last mile friction that I spoke about. Internationally, it's a little bit of a different tail. In some markets, we'll continue to open concept stores, either because that modality of shopping still is the preeminent for brands like Skechers. But we're also experimenting with other formats. Many markets don't yet really understand the notion of an outlet store concept, for example, a neighborhood solution that's full scope. So we'll continue to experiment with other formats across the globe. What I can say is certainly in the near term, it's probably going to be a little bit more internationally focused than domestically on new stores. But I also wouldn't in any moment agree that we're fully penetrated domestically. I still think there's opportunity for us to grow our network, just be in a different format and with some different points of view as to both the characteristics we want around those relationships as well as the capabilities inherent in those offerings.

Yes. So maybe just sticking with investment. You kind of touched on this already. But you've done a big focus on DTC capabilities. And obviously, you have a very large global distribution network. Are there any key investments this year? Maybe talk about your CapEx plans? And then you can just touch on your priorities for cash and thoughts around your potential future share buybacks?

Sure. Well, certainly, I would say CapEx is a priority for our cash and always has been. We think the organic opportunities our business presents for growth are always the most attractive and the highest IRR opportunities out there. And our fundamental belief is that we need to be able to deliver shoes to sell them. So we want to make sure at all times we have the infrastructure in place, the distribution infrastructure, in particular, to provide that solution to our end customers and consumers. In the last year, we've been focused on putting our first wholly-owned distribution center into operation in China. Unfortunately, that was delayed by the pandemic. It looks like we're getting to the point where it's going to get operational this year, which is fantastic. In the United States, we're expanding our footprint domestically. That has been a necessity for a while. It's finally coming to fruition. It will complement both our existing warehouse focused distribution capabilities, but also offer some unique direct-to-consumer capabilities that are important for us as a company. We've established our first distribution center in the United Kingdom in response to Brexit. That's been a new investment. And then we've made a smattering of other investments in other markets to enhance or expand our distribution there. That's the number one priority, making sure we can distribute what we have to the customers, consumers who are relying on Skechers. Secondarily, I would say we've certainly been historically investing in stores. That will continue at some level. Like I said, probably abated from what we've been doing over the last 2 pre-pandemic years. But certainly, that will be a continuing area of focus for us, as well the technology to support our omnichannel solutioning. That's everything from investments in digital to the new store point-of-sale system we installed over the course of this year and are rolling out globally next year -- sorry, that was 2020. It was installed in 2021. We're focused on the international markets. And so those are investments that are directly customer-facing. We also have been consolidating our campus presence in California. That's been something that's been needed for a while. So there is a kind of a short-term blip on the CapEx side, associated with building out a corporate campus for us here in Manhattan Beach, California. That's more of a one-off investment in consolidating our footprint and really gaining some efficiencies and effectiveness for our team that up to this point in time has had to operate in a slightly distributed fashion and a little less than ideal from that perspective. And then there'll be other investments on the horizon as we look to new markets, new capabilities. But for the most part, those are the most significant investments we have on the docket for now. And the one thing I would say is with our investments, oftentimes, we've thought we've made the last investment necessary and then the business continues to grow. And so we won't put a cap on that now because we know that if we continue to deliver on that value proposition to consumers, we'll eventually outgrow what we have today, and we'll need to augment that in the future as well.

Perfect. And then kind of go back to the supply chain. So Skechers has a very agile supply system with the ability to move around inventory. So I was wondering what you're seeing. If you're seeing any disruption from the recent port delays? We've been hearing a lot of companies talk about seeing some incremental pressure. So wondering what you're seeing on your side and what you're doing to mitigate?

Well, I would first say, I don't think any company is immune from some of the challenges we're seeing because their market challenges. They're not specific to 1 brand over another. I do think we're doing a better job than most, navigating through those. I think we have that benefit because of scale, but also the way we treat our partners. I think it's -- the challenges are manifold, which is, I think, everything from production and some raw material to transportation, transportation rates, the port challenges, offloading to last mile delivery, which has also been a challenge. I would say, from my perspective, our supply chain team has done a fantastic job. They make it look easy, but I know it's not, because those are pretty unique challenges all to be hitting at once. The encouraging aspect of that from our perspective is that it does appear to be a short-term transitory issue. It's one that we will work through and it won't persist for what we believe is probably the balance of the year, maybe a little bit longer. But on a more optimistic note, potentially only as long as the summer. And once that happens, once the world has reset and the supply chains have rebalanced, we're actually pretty confident things will get back to normal, absent further impacts from the pandemic. Right now, that leaves us in a position where -- while we feel very good about our inventory, we're probably, on a net basis, going to be chasing more inventory than anything else. Definitely a preferable posture to be in, but it's not. Nobody wants to leave a sale on the table if they can avoid it. So our primary goal is being able to furnish the inventory, and we need to take advantage of the demand opportunities that we are either eliciting in the marketplace or seeing. And once that rebalances, we'll feel pretty good about our continuing ability to deliver. There are a few markets where -- in particular, where they've been closed, and inventory is at a more normalized level, and they're not experiencing as much of that leanness near term. But I would say the commonality generally, and I think this probably stands for most brands, is that we're leaner than normal. And that's, on the one hand, conducive to potentially better overall gross margin realization, but also not what we're aiming for. We're aiming to be able to deliver to consumers and customers what they want to have. But also point out, as you mentioned it, I think the ubiquity of our product lineup across the globe gives us a lot of flexibility. So if product is either stacking up in one area of the market and an opportunity another, we can move it pretty quickly to address those short-term deviations and kind of normalize demand patterns. And so we've seen that throughout this pandemic. Our ability to move stuff around to where it was best positioned to be consumed at the highest value to the company is something that we also pride ourselves on being able to do.

Great. So maybe switching gears to what Skechers is doing on the ESG front, as sustainability becomes increasingly important?

The first thing I'd say is, quite frankly, sustainability or as leases that's commonly defined is actually a pretty long-term frame of reference for us internally. I mean we've done, I think, as much as any brand to focus on making sure as we deliver product, we address opportunities in packaging, the design and development of our own facilities to harmonize both sustainability as well as overall effectiveness and operating efficiency. It's always going to be a focus. I'd see it more as an evolutionary change, a constant evolutionary change in how you're delivering to the marketplace. But by way of example, we built one of the largest, we think, lead-certified distribution centers in California. And as we build out extension, we're similarly going to be striving for the lead Appalachian. I mean when we build our corporate campus here, there are going to be lead certified buildings. They're going to take maximum use of opportunities to deliver on sustainability promises to our local community, which is important to us. So it's a lot of focus. I think the one thing that I would say in a self-critical moment, we haven't been very good about is publicizing some of that, and some people don't appreciate all that we do. We've seen some of that flare up in the most recent issues in China, where we've had to highlight the folks that we've long had a supplier code of conduct that's reinforced by freestanding audits, both planned and unplanned, that help reinforce the notion that our vendors need to be in compliance with our supplier code of conduct. So I think we need to do a better job as a company talking about that and providing more information on that. But it's not because it doesn't exist. It's just because we've been reticent to, quite frankly, in many ways, complement ourselves when we've been focused on sustainability in particular, but also being a good community partner for a long time.

Got it. And then just lastly, what do you think investors maybe don't understand or appreciate about the Skechers story?

Well, that's a tough one. Well, listen, I think, hopefully, the enthusiasm we have for the opportunity for the brand comes through every time we communicate. But I think the thing to really focus on with Skechers is that we believe this brand can continue to grow robustly, outgrow the market. It will continue to be a global brand. I think sometimes, quite frankly, domestic investors, in particular, suffer from a view of Skechers that is very domestically owned, not recognizing that. Like you said, over half our revenue derives from outside the United States. So we think the opportunity set before our brand is pretty unique. And again not to, in any way, diminish the accomplishments of other brands that have certainly grown globally. But we think the rate at which we've done, what we're doing, the endpoint where we see Skechers is the de facto number three, footwear provider in the globe forever, is pretty exciting. And I know people often question the operating margins. But I think being able to grow while also continuing to accrete and deliver operating margin is a pretty unique profile in the space. I haven't seen it much in tech and people don't seem to mind valuations that accord that there. And I think what we're doing is that unique. And we'll continue to do it in a uniquely Skechers way, which I know sometimes is a little bit. But with that, we can promise that it's with the utmost focus on delivering value to shareholders, stakeholders, communities we're aligned with because that's our primary goal.

All right. Great. Perfect. So we will leave it there. Thank you, John, for joining us. And so this will conclude our fireside chat with Skechers. Thank you, everyone.

Thank you.