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

Greetings, and welcome to Skechers Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Skechers. Thank you. You may begin.

Hello, everyone. My name is Shannon Brooker from the FP&A team. Thank you 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 that involve risks and uncertainties. Such forward-looking statements involve known and unknown risks, including, but not limited to, global, national and local economic, business and market conditions, including the impact of inflation, foreign currency fluctuations, Russia's war with Ukraine and supply chain delays and disruptions. In general and specifically, as they apply to the retail industry and the company. There can be no assurance of actual future results, performance or achievements expressed or implied by any of our 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 all other significant risk factors that may affect the company's business, financial conditions, cash flows and results of operations. With that, I would like to turn the call over to Skechers' Chief Operating Officer, David Weinberg; and Chief Financial Officer, John Vandemore. David?

Thank you for joining us today on our second quarter 2023 conference call. Our results exceeded expectations with a new sales record of $2.013 billion and gross margin of 52.7%. These results are due to a 29% gain in our direct-to-consumer segment, double-digit growth internationally and our focus on innovation throughout the business. As the third largest athletic footwear brand in the world, we continue to be the go-to source for footwear for the entire family. By creating fresh techs on proven sellers, expanding our comfort technologies and offering new looks and collaborations, we continue to serve our engaged and loyal consumer base, while expanding our reach to new demographics. Through every collection, we consistently deliver on our design tenets of comfort, style, innovation and quality at a reasonable price. I would like to take a moment to congratulate our global team and acknowledge their dedication and expertise, which enabled Skechers to join the Fortune 500, and honor that belongs not only to every employee, but every partner and consumer. In addition to our successful and in-demand Skechers Hands Free Slip-ins, Skechers Arch Fit and Skechers UNO collections and further building on our walking and performance offerings, we successfully launched several collaborations during the quarter, most notably with the legendary Rock fan, the Rolling Stones. The men's and women's collection featuring their iconic logo, first hit stores in North America and at the bands official store on Carnaby Street in London before rolling out across Europe and other markets. Just last week, we also launched a limited-edition collaboration with Skechers ambassador, Ashley Park, for a capsule of fashion-forward footwear. This came on the heels of the release of our hit summer movie Joy Ride. We have plans to launch more exciting collaborations over the remainder of 2023. We have a diverse team of notable and relatable talent appearing in Skechers marketing campaigns, including Martha Stewart with our namesake collection, singer Doja Cat and entertainer Snoop Dogg, among others. We have also signed regional ambassadors that resonate locally, including European football, Frank Leboeuf and Jamie Redknapp. And Bollywood actress, Kriti Sanon, for India. We also have an elite team of golfers, runners and pickleball pros, training and competing a Skechers Performance footwear. Our marketing efforts connect with consumers wherever they are to build brand awareness to educate shoppers on our features and technologies and most importantly, to drive demand for our innovative products. Throughout the company, we view our accomplishments and activations as an opportunity to elevate the Skechers brand to offer more people the comfort technology products they want and need, and to make their Skechers shopping experience seamless. As always, the goal is to grow and operate an even more efficient, sustainable and impactful manner. Before I discuss the business segments, I would like to note that in the quarter, we completed the acquisition of our long-term Scandinavia distributor. They helped Skechers successfully build our brand in the Nordic region with stores and e-commerce platforms, and a network of wholesale customers across Finland, Sweden, Denmark and Norway. We welcome the Sports Connection team and look forward to further broadening our reach and growing this important market. Looking at our second quarter results. Skechers achieved record sales of $2.013 billion, an increase of nearly 8% year-over-year and 9% on a currency basis. These results were driven by a 29% increase in our global direct-to-consumer segment, which represented 47% of our total sales in the quarter. Regionally, we grew 20% in APAC and 16% in EMEA, including 19% in China, 29% in Germany, 13% in the U.K., 35% in Spain and 27% in India. Sales in the Americas were slightly down. As expected, challenges in domestic wholesale were nearly offset by continued direct-to-consumer strength and wholesale improvements outside the United States. The domestic wholesale decrease was due to inventory-related issues impacting many of our partners. In addition, it is worth noting that we faced a difficult comparison to a particularly strong quarter last year, where we grew 30%. We saw strength in our international wholesale business, increasing 10% as we grew in almost every market. Regionally, APAC grew 14% and EMEA grew 7%, including robust growth in China, Germany, India and Spain. The Americas wholesale business decreased 19%, primarily due to the previously noted domestic challenges, but grew 10%, excluding the United States. Overall, wholesale average selling price per unit increased 8% from the pricing adjustments made last year and unit volume decreased 13%. And turning to direct-to-consumer. The strong demand for our comfort technology footwear improved in-store product availability and effective demand creation led to 29% growth, evenly balanced between domestic and international markets. This includes growth of 28% in the Americas, 25% in APAC and 47% in EMEA. In total, direct-to-consumer unit volume increased 24% and average selling price increased 4%. In the second quarter, we opened 50 company owned Skechers stores and closed 39. Store openings included 28 in China, 8 of which transferred from franchise to company owned; 8 big box stores in the United States and 3 each in Chile and Vietnam. Additionally, we added 56 Skechers stores in 4 Nordic countries and 2 stores in Germany from the acquisition of our Scandinavian distributor. We ended the quarter with 4,705 Skechers stores worldwide, of which 3,161 were third-party stores, which included the 228 we opened in the second quarter, of which 157 were in China, 9 in India and 8 in the Philippines. In the third quarter to date, we have opened 2 company-owned stores in the United States and 1 each in Colombia and Chile. We expect to open between 90 and 100 company-owned stores worldwide over the balance of the year. We continue to increase awareness and emphasize the many features of our comfort technology products, driving purchase intent and ensuring Skechers remains top of mind through targeted marketing initiatives, be it with our engaged ambassadors and athletes, in memorable campaigns on networks and streaming platforms, in publications, on social media and through personalized digital content. Efficiently meeting consumer demand is essential to our growth. We have made significant investments in our distribution centers, are flowing fresh inventory through our retail stores and are improving our delivery times and inventory levels, particularly at our North American distribution center. We have already begun shipping out of our new distribution center in Canada and expect to begin shipping out of our new facilities in India and Chile before the end of the year. And now I would like to turn the call over to John for more details on our financial results.

Thank you, David, and good afternoon, everyone. Skechers delivered another quarter of strong financial and operating performance, reflecting the execution of our long-term growth strategy. We saw continued broad-based strength across geographies and sustained momentum in our direct-to-consumer segment, driving record quarterly sales over $2 billion. This represents an 8% increase year-over-year, which, despite anticipated headwinds in our domestic wholesale business exceeded both our top and bottom line expectations. We believe that these results highlight the strength of our brand and the appeal of our diverse assortment of stylish, comfortable, high quality and reasonably priced product that continues to resonate with our consumers globally. Before turning to our second quarter results, let me touch on the previously announced acquisition of our Scandinavia distributor. This transaction closed at the end of May, but had no material impact on the quarter, given the timing of the close, our comparable sales to the distributor in the prior year and the impacts of purchase price accounting. We do expect the transaction to be slightly accretive to earnings this year, and we look forward to working more closely with the Scandinavia team to continue growing the Skechers brand in the Nordic region. Now let's review our second quarter financial results. Wholesale sales decreased 6% year-over-year to $1.07 billion, due to a 25% decline domestically, partially offset by a 10% increase internationally. As indicated in our guidance last quarter, we expected the inventory congestion at our domestic wholesale partners to impact us most significantly in the second quarter. That expectation materialized, though domestic wholesale sales were actually better than expected due in part to a shift in the timing of orders benefiting the second quarter. International wholesale sales growth was driven by continued strength across APAC and EMEA with double-digit growth in many markets. Direct-to-consumer sales grew 29% year-over-year to $939.5 million, representing nearly 47% of total sales for the quarter. Our performance was driven by an increase of 29% domestically, 30% internationally and double-digit growth across channels in nearly every market. These results further demonstrate the robust demand for our comfort technology products, complemented by the improved inventory availability in our stores and resident marketing campaigns that stimulated consumer demand. Now turning to our regional sales. In the Americas, sales for the second quarter decreased 1% year-over-year to $1.03 billion, which we believe is a remarkable achievement given the challenges we face in the domestic wholesale marketplace. Excluding U.S. wholesale, Americas grew 24% year-over-year, primarily driven by the strength in our direct-to-consumer business. In EMEA, we continue to see robust demand for our product with particular strength in our direct-to-consumer business. Sales in the region grew 16% year-over-year to $433.4 million, driven by double-digit growth in most countries. In APAC, sales increased 20% year-over-year to $552.2 million led by double-digit growth in most countries across both our wholesale and direct-to-consumer segments. In China, we continue to see evidence of recovery and sales there increased 19%, driven by double-digit growth across channels, with particular strength in our retail stores, both owned and franchised. We are encouraged by the improved trends we are seeing in China and are cautiously optimistic about the near-term recovery. Longer term, we remain excited about the growth opportunities for our brand in the market. Second quarter gross margins reached a record 52.7%, up 460 basis points compared to the prior year. The improvement was driven by a favorable mix of higher direct-to-consumer volume as well as the annualization of pricing adjustments made last year in our Wholesale segment. Operating expenses increased 210 basis points, as a percentage of sales year-over-year from 39.8% to 41.9%, as we leaned into demand creation investments and absorb volume-related costs across the globe. Selling expenses increased 40 basis points as a percentage of sales year-over-year to 9.3%, primarily due to higher marketing expenditures, a significant portion of which were focused on driving consumer awareness for our new Skechers Hands Free Slip-ins technology. General and administrative expenses increased 170 basis points as a percentage of sales year-over-year to 32.6%. The increased expenses were primarily due to higher labor, rent and distribution costs to support our volume-driven growth within our direct-to-consumer segment and international markets. Earnings from operations were $217.7 million, a 41.2% increase compared to the prior year, and our operating margin for the quarter was 10.8% compared to 8.3% in the prior year. Our effective tax rate for the second quarter was 17.7% compared to 21.3% in the prior year, reflecting the beneficial recognition of several discrete items in the quarter. Earnings per share were $0.98 per diluted share on 156.6 million diluted shares outstanding, a 69% increase. And now turning to our balance sheet. We ended the quarter with $1.07 billion in cash, cash equivalents and investments, an increase of $127.3 million or 13.5% June 30, 2022. Inventory was $1.49 billion, a decrease of 5% or $77.9 million compared to the prior year. However, inventories declined over $300 million or 18% versus December 31, 2022, and are healthy and well positioned, both to meet consumer demand and continue the introduction of innovative products in the critical back-to-school and holiday selling periods. Accounts receivable at quarter end were $940.2 million, an increase of $23.4 million compared to the prior year, reflecting higher wholesale sales in the back half of the quarter. Capital expenditures for the quarter were $76.2 million, of which $29 million was related to the expansion of our distribution infrastructure globally, $20.6 million related to investments in our retail stores and direct-to-consumer technologies, and $11.4 million related to the construction of our new corporate offices. Our capital investments are focused on supporting our strategic priorities, growing our direct-to-consumer business and expanding our brand presence globally. During the second quarter, we also repurchased approximately 579,000 shares of our Class A common stock at a cost of approximately $30 million. We continue to deploy our capital consistent with our stated philosophy. And now turning to guidance. While we continue to see robust consumer demand and strong branded momentum globally, several uncertainties remain, including ongoing headwinds with some wholesale partners in several markets, ambiguity around the pace and shape of the recovery in China and disconcerting macroeconomic trends. Accordingly, our outlook attempts to balance these factors, and we remain cautious about our expectations for the remainder of the year. For the fiscal year, we expect sales to be in the range of $7.95 billion to $8.1 billion, and net earnings per diluted share to be in the range of $3.25 to $3.40. For the third quarter, we expect sales in the range of $1.95 billion to $2 billion and net earnings per diluted share in the range of $0.70 to $0.75. Our effective tax rate for the year is still expected to be between 19% and 20%. We expect total capital expenditures for the year to be between $300 million and $350 million, as we continue to invest in our strategic priorities, including opening additional stores, expanding our omnichannel capabilities and adding incremental distribution capacity in key markets like India, China and Chile. We remain confident in growing our sales to $10 billion by 2026, as we continue to execute on our long-term strategy of growing our direct-to-consumer business, both in-store and online, and expanding our brand presence globally, all of which is made possible by our differentiated product portfolio and attractive value proposition that continues to delight consumers around the globe. We thank all of you for your time today, and we look forward to updating you on our third quarter financial results, which we expect to release on Thursday, October 26. With that, I will now turn the call over to David for closing remarks.

Thank you, John. We are proud to join the Fortune 500, motivated by our record results and excited to build our global momentum. The quarter was exceptional, most especially within our direct-to-consumer business, our strong 52.7% gross margin, the robust demand for our comfort technology products and the buzz surrounding the brand. From Skechers Hands Free Slip-ins footwear to our recent Rolling Stones collaboration, to the marketing launches with Ashley Park and Skechers Uno. Skechers defines comfort, no matter the footwear need. We are the go-to source for all casual lifestyle activities, for elite athletes on the pickleball court or golf course for those that work in an office or in the occupational footwear industry. And for the record number of people once again flying this summer, Skechers is truly for all walks of life. As always, we are focused on improving efficiencies, scaling our efforts, growing our business with new opportunities and delivering comfort, style, innovation and quality across our entire product line. We are thankful to the entire Skechers organization for another successful quarter, and I'm looking forward to working together toward our planned goal of $10 billion in annual sales by 2026. Now, I would like to turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Jay Sole with UBS.

Great. So I want to ask about direct-to-consumer sales in the quarter, which were up 29%. Maybe tell us a little bit about how much e-commerce grew and maybe the stores? And maybe just help us understand like the differential between the Americas, where it was up 28% and obviously, wholesale or so like -- how can the trends be so different? What was is -- how do you explain that?

Well, thanks, Jay. I mean that is in part a key question we have as well. What I can tell you about the direct-to-consumer performance is that it was significantly anchored both internationally and domestically in the stores. We saw better traffic, better conversion, better units. I mean it really is, I think, a product-driven demand. We're seeing consumers are coming into the store. They're looking for our Comfort technology products. E-com grew in both markets, just being to realize e-commerce is at a different stage of development in each of those markets domestically. Obviously, it's grown significantly. It was up double digits, but stores were really the anchor there. Internationally, it was up more, but again, that's starting from a slightly smaller base. Ultimately, I think the benefit the stores have is that as we said in our comments, they have the right inventory. They have the product that is the most new that features our comfort technology product attributes. And that's what's driving consumers into the store, particularly when activated with a lot of the demand creation spend, we mentioned. And -- I don't think that's the case everywhere else. And I think that's probably the advantage. Net-net, for us, we're thrilled that consumers are able to find the product they want and need. We're thrilled to be able to give it to them in whatever channel distribution they prefer. But clearly, we're seeing robust consumer take for the new product portfolio.

Jay, I'd like to just point out, if I can, the timing differential of how these things happen. When we point to things like we had a very tough comp to last year as far as domestic wholesale is concerned, we had the same issue last year. We had received a lot of goods from our factories. We had shipped a lot of goods, although it took a longer while to get it into the stores. So what you're seeing basically, if you were to look at our factories, they would show that their volume to us was down over the last quarter as compared to last year because of all the backup after pandemic and getting multiple months at a time, and we de-inventory since the end of the year. I think the same is true for some of our customers. That's true in Europe and the U.S. and for our distributors. They've taken a lot of inventory. They were tougher comps for those that we booked as -- when we sold it to them, not when they sold out. And now that our stores are full, and you see a lot of our customers deep inventory, while they're showing increased sales. So if you take a differential in timing, those that took the stuff early, we ended up with a big bang last year because we shipped it out, and didn't have to worry about getting it to store or getting it to consumer. Ourselves now, we are, like John said, the most efficient. We turn it over every week, we deliver to our stores throughout the week, some 2, 3, 4 times. They're fresh, they're new. And we're getting it and I think some of our customers, distributors are also in the same boat. And as they clean out their inventories, they'll start to pick up the receipts, which is what we'll get to a more normal by the end of the year, I hope we're in the -- in the first quarter of next year.

Next question comes from Laurent Vasilescu with BNP Paribas.

I was curious to know, John, if you can maybe talk a little bit about what you're seeing in domestic wholesale. I think 90 days ago, you talked about an inflection. Is that what you're seeing in your channel in the U.S. wholesale marketplace?

Well, I'd first point out that as we said last quarter, we expected to be the toughest quarter for us from a domestic wholesale perspective. It's actually less challenging than we had thought. We mentioned there were some orders that got pulled up, which we believe reflects the active sell-through that David mentioned on some of our core product that's out in the marketplace. So in a way, what we've seen is a little bit of a shift into Q2 to benefit that was -- although 25% is not what we aspire to. It is certainly less challenging than what we would have expected. It does rebalance the back end of the year a little bit. Look, we're optimistic that the continued consumer demand and active sell-through we're seeing, you're clearly seeing it in DTC. You're seeing it in certain accounts on the domestic wholesale front, will lead to an increased reorder pace. I would still say we believe Q2 was the most challenging and will have been the most challenging retrospect. I would only caveat to say that timing is something we're seeing more movement on lately. So that could create a pocket here or there. But definitely, overall, pleased with how we came out of Q2. And we're cautiously optimistic that things are starting to turn for the back half of the year. Although again, timing being what it is, we may see some shifts around, although nothing like that is currently anticipated in our guidance.

Very helpful. And maybe can you talk about the gross margin continues to be very impressive. I think, John, remind me, but I think that freight was at least a 300 basis point headwind to last year's gross margin. Did you start to see a little bit of freight become a benefit? And do you anticipate to recapture all of that freight over the next 4 quarters? Any color on that would be very helpful.

Well, I'd first reiterate the big benefit to gross margin was -- we were nearly 50% direct-to-consumer this quarter. So there was a rather significant mix benefit that you saw, I think, flow through into earnings, which is terrific. But also the previously discussed changes to the domestic wholesale pricing, in particular, but also some international wholesale pricing that finally got annualized into the system. I'd say we are starting to see clearly in available rates, shipping come down. It didn't materialize fully this quarter. I do think there was some pickup there. A bit of an offset though, because as we sell more of our comfort technology products, you do see a slightly increased cost per unit. Now we're able to charge more for that. We're able to deliver more value to the consumer. So it offsets. So there's a little bit of a masking effect in there. But what I would say is, we continue to expect year-over-year improvement in the margin for the balance of the year. We'd like nothing better than that to be more about the shipping and the pricing than the mix because we'd love to see the domestic wholesale in particular, catch back up to where we think it should be on a run rate basis. But we continue to foresee improvement in gross margins quarter-over-quarter year-over-year, so that Q3 will be better than last year, Q4 will be better than last year as well.

Next question comes from Gaby Carbone with Deutsche Bank.

Congrats on the strong results. So just bigger picture, would you help us think about the long-term pathway for margins? Seems like you'll get back to 2019 EBIT margin this year. But beyond that, where do you see the biggest opportunities to expand margins within the business?

First of all, thanks, Gaby. It's the continued growth trajectory of our international and our direct-to-consumer businesses, as we've said for a long time, that really is the longer-term algorithm for growing both the gross margin and the operating margin. I mean obviously, there are opportunities within operating expenses to create a little bit of a tailwind leverage, but that's always going to be continents for us against what it takes to invest for the brand to grow to $10 billion and the numbers beyond that. So I'd say, again, the first emphasis is continued growth in those 2 key avenues for us with some potential upside opportunity to leverage operating expenses longer term.

Got it. That's helpful. And just a quick follow-up. In your press release, you mentioned that you're developing new categories that are going to be introduced later this year. Just wondering, if you could elaborate on that?

Probably not. We try to be careful not to get too far ahead or give too much notice where we're planning something -- certainly something big to get everybody an idea of where to look and where to find it. I think we're all secure and some launches you'll see them, I believe, shortly, and we'll know them as they happen. But we're not in a position yet and nor will be ready to go forward and announce them and get everybody ready from a competitive point of view.

Understood.

Thanks, Gaby.

Next question comes from John Kernan with Cowen and Company.

Congrats on the great quarter. You beat the high end of the sales guidance by about $100 million, which is great. It's obviously a function of how much momentum you have in the business. The flow-through was quite high, the operating profit line, too. Can you just talk to what surprised you the most, John, financially in the quarter? Obviously, there was some sales upside. It seems like gross margin also was an area of upside to your expectations. And just have a follow-up for the full year guide as well.

Well, I don't know that I would characterize this as a surprise per se. But let me contextualize it within the prior guidance. The continued extraordinary strength we're seeing in the direct-to-consumer business. Certainly, outdistance our prior year guidance. It's hard to put into guidance a growth rate nearly 30%. So now that being said, we had seen strong trends. We feel like we have the product for it. So we were optimistic that it would continue, and it did, which was great, but I -- I don't know that wisdom would have been putting that fully into the guidance. So that definitely outdistanced our guidance. I would say China came back, did really well this quarter, even in kind of a mixed quarter from a consumer behavior perspective, but growing nearly 20% was a great result for us in China. And then the domestic wholesale. I know it's -- again, we don't want to log ourselves for a 25% decline, but that is better than we thought. We saw, again, sell-through driven activity and other activity in some accounts that are a little bit healthier than others from an inventory perspective leads to some accelerated take on the product. And that was great because our hope is that that really starts to indicate a change with the balance of our customers that being in stock and full in sizes with the new product is the best way to go forward, which is what we're doing in our own retail. So those were all positive surprises. Of course, you never get just good news. So there were some a little bit of challenges here there that we dealt with that we're not going to talk about because they weren't material. But overall, I'd say the net effect of it was definitely results that exceeded our expectations.

That's very helpful. And then I guess with the $3.25 to $3.40 EPS guidance, maybe talk to some of the puts and takes within gross margin? And also the balance between demand creation and marketing expenses to keep the top line moving at this pace?

Yes. I would say from the balance of the year, I think the one thing to note is we're getting to a point where we're going to start comping against some stronger results last year. Last year, kind of the curvature, if you will, of gross margin was that the first half of the year was better. It was bad. The back half of the year got better. So some of that -- the comparability simply won't be as favorable because last year wasn't as detrimented. Clearly, we still have, we think, benefits coming from a cost perspective. We've now fully annualized pricing though, so that will offset. The net effect of it is, again, we feel like we're in a good resting spot going forward with kind of that improvement in each quarter relative to the prior year. The one thing to keep an eye on is mix, we did obviously tilt favorably towards mix. We could see growth in our wholesale business, which would again be potentially detrimental to gross margin, but more gross profit dollars, and we'll take that because that leads to more earnings for our shareholders. And that's obviously our ultimate objective. So there's always -- we're still not fully clear of COVID, there's a lot of noise. But I would just say that the comparability going forward becomes more normal. And that will just make the delta a little bit smaller as a result of being compared against a prior year that started to get better. The one thing I would note, though, is we are optimistic about back-to-school. We're optimistic about the holiday period. We are currently in a position where if you recall last year, we had a lot of on-hand inventory, and we had to deal with that. And obviously, we're much trimmer today than we were at the end of the year. We're down nearly $300 million of inventory versus just December, which gives you a sense of how much we focused on that issue and resolved it. But we also had last year, not a lot of depth in stores, and that's been resolved, so that our stores -- are generally in stock with the right products. So we do think that that is a little bit of a continuing tailwind, particularly in the third quarter and into the early part of the fourth.

Next question comes from Tom Nikic with Wedbush Securities.

I wanted to follow-up on domestic wholesale. How do inventory levels look for your brand at the U.S. wholesale channel? And have you gotten any sense that some of the overhangs of inventory for some of the other brands out there have started to alleviate?

Yes, I would say when we look into inventories at kind of our top 10, top 20 wholesale customers in domestic markets, inventory look pretty good. In fact, I would argue probably a little bit leaner than we want them to be. And so we think that tees up well for strong sell-through driven reorders. Now again, they're dealing with inventory issues that extended beyond the Skechers brand and that, we believe, has been one of the bigger challenges. Although I would just note, it's not every customer. We have wholesale customers out there who are doing fantastic. And that's what led to some of the some of the improvement in results relative to our second quarter. So look, I don't know how long it will take them to deal with the totality of whatever congestion they're experiencing. What we do know is that our product is in demand and selling well. There certainly doesn't appear to be any significant backup to our inventories in those key accounts. And so we think that -- and pricing is good. The factors tee up well for an acceleration of reorders once they're clear of whatever challenges they're experiencing.

Got it. If I could just follow-up. I think on the last couple of calls, John, you said your hope would be, or you would drive towards getting back to flat in U.S. wholesale for the end of the year. Is it safe to assume that it will take a little bit longer to get to that point? And we should assume that 2H U.S. wholesale is still down, but to a lesser extent than the first half?

Well, I don't want to prejudge the range of possibilities. I would say, as we look forward and certainly when we considered our guidance, that's what we're currently expecting. Although again, as I just mentioned, we think the situation is prime for the healthy consumer demand we're seeing out there in the market, stimulating some early reorder activity. But, insofar as our guidance is concerned, that's the position we've taken.

Understood. Best of luck in the second half of the year.

Thanks, Tom.

The next question comes from Abbie Zvejnieks with Piper Sandler.

I was just wondering if you're seeing any of the same dynamics in terms of inventory congestion in any of the international markets, particularly Europe? And then second, are you -- what are you seeing in terms of promotions?

Well, internationally, it's probably not the order of magnitude is here in the States, but the same things exist. And while we're doing better in EMEA, we still have customers there that are cleaning through inventory. But the sell-through rates as in the states and maybe even more so than the states continue to be at the top end and the brand performs very well. So we're starting to see a bigger influx of orders and certainly looking better as we get to the end of the year and into Q1. As you go around the world, it varies from place to place-to-place or geography-to-geography. I would say that Europe is slightly better shape than the U.S. as far as those sell-throughs are concerned. South America, Central America, if you go from Mexico down is a mixed bag. Like Chile is a strong market for us, does much better direct-to-consumer. Their wholesale business are having a little trouble cleaning out yet. In Peru and Colombia, it's picking up for us as it is in Central America. Same holds true in Canada. We have significantly better direct-to-consumer and still have a number of wholesale customers cleaning out. As far as China is concerned, they're getting back in line. They started earlier. They had a big pickup, which was very good for them in Q2. They're looking good as far as inventory is concerned, they are a bigger piece direct-to-consumer than wholesale. So that bodes well as we go forward.

And so far as promotions, I would actually say it's still pretty stable. If you recall, last year, we started to introduce promotions kind of in the current quarter, maybe a little bit before, sporadically, but they look stable. And again, from our perspective, the in-store work, in particular, continues to motivate consumers to come into the store and shop. And so it's doing exactly what we wanted to do.

Since there are no further questions at this time, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.