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

Okay. Great. Good morning, everyone. We appreciate you all joining us here live in Laguna as well as on the webcast. For those that don't know me, my name is Will Gaertner. I'm the small and mid-cap footwear and sporting goods analyst here at Wells on the softlines and specialty retail team. Today, we have the pleasure of hosting John Vandemore, who's the CFO of Skechers. For those perhaps living in the rock and don't know Skechers, it's a $700 billion market cap global footwear company that sells their product in over 180 countries. The brand is the #3 player in the footwear category in terms of market share, both in the U.S. and globally. So John, thank you so much for joining us today.

Yes, thanks for having us.

Maybe we start by refreshing folks on the components of your long-term $10 billion rev target, bridging that from the $8 billion guide today, maybe break apart how are you thinking about DTC growth, domestic wholesale growth, international wholesale growth, China expectations, et cetera?

Yes. I'd be happy to, although let me admit I don't know exactly how the future is going to unfold. I think the last couple of years have taught us any expectations last only as long as the market conditions support it. What we've designed, we think, in our strategy in our business is the ability to get [ to 10 ] relying on our high-growth businesses. That's our direct-to-consumer business, both domestically and internationally. And then our international wholesale business. International for us has been a significant driver of growth for many years. We fully believe it can continue to extend that, both in existing markets like China, like India, South America, Eastern Europe, Western Europe, but also in new and exciting developing markets like Southeast Asia. And so when you take our history in those markets as well as the opportunity that gets you somewhere kind of to a mid to high teens growth rate for the international wholesale business, sometimes a little bit above. Certainly, on occasion, we can be pressured by market conditions. The domestic direct-to-consumer business is also, we think, a thriving opportunity. That's comprised of new stores, new online capabilities driving new product categories in growth. We recently announced an exciting entry into cleated product, our first football/soccer cleats depending on where you are in the globe. But as an example of categories that are still ahead of Skechers and an opportunity for us. International direct-to-consumer is really probably the most wide open lane because being the face of the brand at retail as well as capitalizing on opportunities to both introduce people to the brand as well as welcome them into additional categories is best expressed in that market. So I would say, generally, the direct-to-consumer business in aggregate is probably a low teens to high teens growth opportunity. The one thing to keep in mind is when you're growing stores, when you're growing markets, it's incredibly important to open profitable locations. So sometimes the [indiscernible] on that is more an opportunity than your desire but we definitely think there's a lot of runway. Added to that, I would just note, when we talk about category expansion for us, it is we think in an enormous opportunity to leverage that existing infrastructure. You mentioned we're in 182 markets across the globe. Nearly 60% of our revenue is derived from outside the United States. So when we have the opportunity to add a category, the extrapolated benefit to the brand across the globe is enormous because it's not just a category for a specific market. And so we really have the ability to leverage that infrastructure and deploy that solution. The best example I can give you in that today is our work product. So folks here are wearing our work product. It's a product category we started in the United States in response to the need that most consumers who work in specialized footwear requirement categories have, but it's one we've now taken across the globe because there are service worker requirements for slip resistant shoes in almost every market. There's the need for steel toe shoes in almost every distribution center across the globe, no matter where you are. And so that's a good example of how penetrating into a new category gives us the opportunity to exploit our distribution infrastructure and kind of outgrow the market as we introduce those categories in additional locations.

Moving on to your -- I believe you've talked about a low to mid-teens operating margin. Can we maybe break up the components of that from gross margin, SG&A, sort of any color on that you can give around those?

Yes. So we've long had an objective to get kind of to the low teens operating margin, what we've traditionally kind of book into that as somewhere between 11% and 13%. It's not static. It's dynamic in the sense that while it's certainly what we believe the business is capable of earning, achieving it in any given year has to be counted against our desire to invest for the future. I would say in 2019, we were just under double digits. Then COVID hit. So the last couple of years have really been focused on making sure the business is stable and strong, and quite honestly, poised for growth post-COVID. And that has been a challenge from the operating margin perspective. Our first near-term goal is to get back to the 2019 operating margin number, 9.9%, but it's not that we're going to stop there. I would say, more importantly than anything else, the business absolutely has the capacity to be at those low teens operating margins. I know one question we get a lot is, is there anything structural in the business that would prevent that? And the answer is no. The only thing that gets in the way of that is our strong desire to continue to grow the business. You mentioned $10 billion, but we're not going to stop at $10 billion. We want to keep growing this brand to be as big as it can be across the globe. So if we see an opportunity to invest in OpEx or even in CapEx ahead of that, we're going to take it because that's what we know will drive the most value for shareholders long term. That all being said, it's absolutely a part of what we plan for and how we think about the business. Our goal, once we get back to kind of that 2019 level, is to use largely the accretion in the business associated with driving more international, driving more direct-to-consumer because those are gross margin-enhancing businesses. And then the flow-through effect will ultimately accrete at the operating margin. I say that, but I'm not precluding the opportunity for getting leverage out of OpEx. I just would tell you it's not the primary means we've established to get to that kind of low teen range. It's certainly an opportunity, and we look at those opportunities pretty seriously when they come up, but it's not going to be the primary means. I would relay to you all, I think that should give you comfort because at the end of the day, there are multiple avenues for us to go and achieve that goal while also simultaneously investing for the growth of the business. And I think if we can achieve both of those, quite honestly, growing the top line, growing the operating margin, then we've got quite a story for you to invest in.

Maybe talk a little bit about margin profile of each channel. And you sort of touched on it, seems that international and DTC obviously have a better margin profile than wholesale, but maybe just kind of dimensionalize each of those and speak to those?

Yes. Of course, we don't talk about operating margins by segments or businesses only because we don't go through an allocation process internally. We just -- there's not a lot of value moving numbers on a page if it doesn't actually substantively impact the business. I would say when you look at our DTC business, when you look at our wholesale business, they are generally contributing at equivalent levels from an operating margin perspective. International markets are actually designed to overachieve that. But you got to keep in mind, they're not paying for exorbitantly priced CFOs and things like that. So they're not asked to absorb those costs in their P&L, but we need them to over-contribute as a result. And nearly everyone does. There's always a -- not all boats always go in the same direction at the same time. So there's always a country going through some level of duress at a given point in time. But the vast majority of our international markets are over-contributing at the operating margin line to help drive that accretion. The one thing that I would tell you though, we don't get overly obsessed about margins per se because our goal is to grow the brand as big as it can be and contribute ultimately more dollars. So there are some situations. Our distributor business is a great example. It's a relatively low gross margin business. And so if it grows faster than the rest of the business, it can be dilutive to our gross margins, but the flow-through at the operating margin is excellent. And I only give that example because we like to make the decision based on how much is actually going to drop to the bottom line. And that means we'll dilute the margin a little bit in order to drive more operating profit dollars. We'll absolutely do that. But overall, I would say the design of our business is once you set aside kind of corporate costs that we're achieving at least a base level of contribution from each of our businesses that helps drive that operating margin forward.

Maybe if we could pivot to the consumer. I mean, just speak a little bit about who your core consumer is in the U.S. versus EMEA, APAC? And how the brand is viewed in the U.S. versus internationally?

Yes. I mean, we would probably say, and I think this is with confidence, our consumer is anybody with 2 feet. We'd be willing to sell singles as well. In terms of where we're strongest in the United States, I would say it's a little bit unique. It is our home markets where we started. We tend to be very strong in kids. We tend to be very strong in individuals who have to pay for their own footwear. Historically, we probably haven't been as strong in some of those kind of teen demographics, but I actually think we're making significant headway. We have some very good street product that's focused on that nowadays. So it's one we're building into. But if you think about it kind of in general, we've got you in the beginning and we've got you in the middle to the end. I would say outside of the United States, it's a much more balanced profile. We have a lot more balance in our demographics and our structures. Probably more importantly than anything else, though, is we always say that we want to deliver style, comfort and quality at a reasonable price. And lately, it's with a dose of innovation. And I think that's really probably the more important thing to focus on. We want to deliver footwear to people who value those 4, 5 characteristics. And generally speaking, for a solution, if not multiple solutions in a consumer's closet, you're going to value style, comfort and quality at a reasonable price. And that's what we really want to focus on delivering. It doesn't mean we don't have a premium product, we absolutely do, but what we really score best in is delivering against those 4 value propositions, and that's what consumers really appreciate. And it's why we've made such an emphasis to focus on being the comfort technology footwear provider out there because that's both what we think distinguishes us in the consumer's mind but also it's something that we do better than anybody else. And I think you're seeing some other brands noteworthy lately, focus on comfort and emphasized comfort, but what we know at the consumer level is we win on comfort. And so that's where we focus across the globe.

Maybe just commentary around what you're seeing. We've -- obviously, U.S. seeing a little pressure. I mean, just talk about sort of your thoughts around what you're seeing with your consumer in the U.S. versus internationally? And if these pressures are impacting you, impacting the brand?

I would say the most surprising thing over the last 9 months is how robust we have seen, at least our consumer perform across the globe. And then it's really been a bit of a surprise. Now 6 months ago, we were all wringing our hands about when a recession would hit, which hasn't yet transpired. But even against that backdrop, I mean, our direct-to-consumer business globally is up nearly 30% in the first half of the year. I mean that's an astonishing number. I think it's reflective of the fact that we are bringing newness to the market that we are really winning on our messaging around comfort that we're also delivering a product that is infused with comfort technology. But at the end of the day, that consumer is still really, really strong and vibrant, and it seems, in some instances, kind of almost against all odds. And I say that's continuing. It's not the same rate in every market, but it's really a noteworthy accomplishment that the consumers remained as healthy as they have for our brand. Now I can't say if that's a universal characteristic. I don't know if that's affecting all brands. But I can certainly tell you for our customers in our stores and online, both in the U.S. and outside the U.S., that's the key characteristic we see is that they are still eager to get our product that you've got to buy into the comfort technology, and that's helped propelling our DTC growth.

Let's talk about market share gains. I mean clearly, you're growing faster than the overall category. I mean, I took a look at your [indiscernible], you've taken 100 basis points of share in the U.S., 50 basis points globally since 2019. I mean where are you taking share from? What channel? Who are you taking share from, what brands? And what do you think are driving the share gains?

Yes. I mean the drivers, I think, are largely the same [indiscernible] I just mentioned, which is really making sure we're delivering to the consumer against those core value propositions for us. I would say in terms of where the share is coming from, it varies by market. What we tend to see is that as your first selection into branded footwear, we're a great solution. For us, in all honesty, our main objective is to get you into 1 and then 2 pairs, so that you can see how much we have to offer. I think what we see is the premium guys kind of battle it out and one is hot, while one is not, and they trade share. But what we've consistently done over our history is incrementalize our share up and up and up. My suspicion is it takes from some of the smaller players. It probably takes from private label to a degree. I think the other thing that's important to note is our competition is not consistent across categories. There's certainly some instances where we're going head-to-head with on Nike or an adi. But there's others still where those brands aren't even prevalent. And so people often ask, who's your main competitor? And my answer is there is no main competitor. We have multiple competitors. Take it to China, leaning on to Xtep. Those are the competitors there that we don't deal with elsewhere. So what we feel really good about, and I think what gives us comfort in our growth opportunity is that we have a very strong product lineup that expands across categories, and that gives us both a lot of flexibility. But the fact that we're able to compete successfully in each one of those against varied competition gives us comfort that both what we're doing is aiming at the right segment of the market to drive growth but also matches what consumers want. And I think, again, I think it's the integrity of making sure we're always delivering against those core value propositions and bringing newness to market. Bringing something to market that excites consumers and then, quite frankly, marketing the heck out of that, and making sure, Robert's famous phrase is unseen, untold, unsold. And so we make sure you see it. We make sure we tell you about it. And as a result, we have the opportunity to sell it through.

Let's talk about the wholesale channel. With all the volatility, particularly in the U.S. in that channel and combined with sort of your focus on moving towards DTC, explain what your go-forward strategy is in that channel? I mean, are you trimming wholesale exposure at this point? I mean just talk a little bit about how you're thinking about that channel?

Yes. I would say, first and foremost, we've never taken the tactic that we're going to take product out of a wholesale partner who's productive with our brand, who's treating our brand in the right way. We fundamentally believe that our #1 priority right now is putting our shoes into as many places that consumers want to buy our shoes as possible. We want you as the consumer to have access to our shoes. And so we've not taken the tact that I think others have taken and then maybe untaken to trim out wholesale partners. What is incumbent upon us is to ensure that if we're with a wholesale partner, they're treating the brand properly. They're showing it properly. They're maintaining value properly. They're communicating to the consumer properly what that product delivers. But if a wholesale partner is willing to do that, we will continue to support them to grow our brand. It has been a difficult market in the U.S. I think there's probably a lot of different reasons for that. I would say it's not universal. We've seen strength in some wholesale partners while we've seen weakness in others. Clearly, there was some overhang of inventory and congestion in the marketplace, and that has inhibited the domestic wholesale market from getting back to a level and a growth rate that we think is probably more indicative of where it can go in the future. I think in some respects, it's a bit of a reset year because those wholesale partners that have issues have to work through those before we can get back to normal. I would say it's interesting for us because it's also compared against our DTC business that is doing so well. So we take away from that. We know the consumer wants the brand. We know the consumers eager to get into our product. But if we can't get into the wholesale partner because they're having congestion issues, that's the limiting factor in the near term. But what gives us comfort is that they still want to get to the brand. And so that's the good news. I would say as well, over the course of the year, the domestic wholesale picture seems to be getting better and better. It's not yet at the point where it's triggering a level of activity that we would like to see or we would expect to see in terms of reorders or pull forwards, but there's definitely good signals. We spoke about this at the end of the second quarter. The inventories are lean, pricing is holding, margins are good, sell-through is good. Those are all great characteristics. We did see some pull forward in Q2. The linchpin though is it's got to trigger a reorder at some point or it's got to move up orders so we can get some incremental business at some point. And that's the missing link at the moment. I'm confident that will come. I don't know if it will come by the end of the year, but I am confident it will come. What we've seen of late has been more encouraging, which is nice. But again, I'm waiting for those orders. That's what ultimately matters from a financial perspective. But I do think it will resolve. And longer term, it is absolutely a channel that will get back healthy. And I think once it does, it has an opportunity to continue growing from there. I should mention the one other thing is because some people have asked about it, it's also not the case that we segment our product away from wholesale to our DTC. Again, we want the best stuff to be in every location possible. So our comfort technologies are available to our wholesale partners to buy into. Our new designs, our new [indiscernible], it's available. We don't segment significantly that product because, again, we really want them to be successful with the brand on behalf of the consumers they service.

More near term, how are you thinking about wholesale into the second half as your [ compare ] sort of kind of become somewhat easier in the second half here?

Well, we haven't really adjusted our view on the full year, just mathematically, what that meant because the second quarter was a little bit better than expected. We've flowed through some of that to the back half of the year. That makes the back half look a little weaker than maybe we had originally expected, but that it really is just math to hold the year constant because, again, we haven't seen that reorder come through yet or massive [ pulls ]. If we do start to see that there's absolutely opportunity to outperform, and we'd be open to have that happen, but we haven't seen it yet in the years closing pretty fast. So I would say in the back half right now, it's a little bit softer than we originally indicated, but really that's the whole year view consistent with how we started. And again, what we're hoping for is that some of those green shoots that we've seen in the business start to materialize in the form of either pulled forward orders or incremental orders because that's what we'll ultimately get the product into their hands and then into the consumer's hands.

If we pivot to pricing and ASPs, how much price have you taken over, call it, the last 24 months? And is there room you think to continue to take price here?

Well, I mean the pricing we've taken, like a lot of other brands has been meaningful. I mean it really depends on the channel. I would say it's up enough that I think given the context of the broader consumer continuing to see inflation, we probably aren't eager to drive any more price. I mean a lot of it was reflective of exigencies in the marketplace like freight, like FX. But more importantly, the way we talk about prices and ASPs, but what Skechers wants to do is not simply charge you more for what we gave you last year. We want to give you more, too. And I think where we've really been successful in driving ASPs is delivering more value to the consumer and then charging appropriately for that. And we've had a lot of success with that over the last couple of years. When consumers feel like they're getting more, they're willing to pay more. That's a fair trade. And we think our focus on comfort and comfort technologies, and again, continuing to deliver against those other value propositions that's what's been able to allow us to drive ASP growth. Because, again, we don't want to do is get in the habit of, you paid $1.50 for a bottle of ketchup this year and you're paying $1.75 next year because that doesn't -- consumer doesn't feel like they're getting a fair trade out of that. And that's incredibly important to us. I don't anticipate that aside from mix benefits or kind of product mix benefits that we're really going to seek to drive ASPs in the near term. And there are some areas, quite honestly, where we will probably unwind if we have an opportunity, a few strategic areas where we want to make sure we maintain a strong foothold in opening price points, particularly outside of the United States that we're going to take. But again, that's with a very purposeful eye of making sure we're continuing to get people into kind of those OPP levels that let them springboard into the next product later on.

Maybe go off script a little bit here. Maybe talk about AUCs and how those have evolved. Obviously, you've seen some input pressures over the last couple of years. Are you seeing that easing? And sort of how does that flow through into the back half and maybe into next year?

Well, there's always input cost pressures. I mean it's kind of a never-ending dial. And I would probably paint the picture that that's really how we deal with it. We're always negotiating costs. I would say the most significant cost driver by far in the last 3 years was freight. I mean freight was kind of an outlandish extreme on the cost side. In some instances, we saw increases, and I'll round up here and give you generalities, but where freight might have been $0.50 per unit, it went to $2.50 in a very short window of time. I would say outside of freight, really, there hasn't been anything extraordinarily significant. You've somewhat seen a fortuitous balancing between where FX has gone and where either raw material costs have gone to the point where they're really not noticeable. But I say that and it makes it sound like you just don't do anything. That's not the case. I mean we're actively negotiating on an ongoing basis and value engineering around product to make sure that we're maintaining the margin structure that we want to for a product because we have a sense where the price point ought to be from a consumer perspective, from a consumer lens. And so we want to try to make sure we're developing and delivering shoes that can meet those margin objectives. So it's an ongoing effort. It's always a pressure. But I would say over the last couple of years, really, the most significant factor has been freight. And the good news is that it has started to abate in terms of our recognized cost in the marketplace, freight rates are definitely back toward normal, and that's very encouraging.

Pivot to your owned e-commerce and your omnichannel business. Where are you in the rollout internationally? And maybe talk about your e-commerce penetration in the U.S. versus internationally?

Yes. If you recall, the last couple of years, we've spent a lot of time and energy developing a new platform. We first deployed that in the U.S., quite frankly, right in the middle of COVID. And then our plan had been to take that internationally into several new markets, close to 20, I think, all in. I would say the vast majority of those are done. There's still a couple that need some more nuanced development and capabilities that we're still working on. But largely, we've rolled out the new platform across the globe. It's done wonders in the U.S. in the midst of COVID and beyond. It's actually gone exceptionally well in Europe. This is the first year where we really have the capacity to use that technology, and it's delivering much, much better than we thought. I do think it's important to note -- I mean when you think about e-commerce today, you have kind of China and U.S. on one end of the extreme, and you have pretty much every other country in the world on the other end, which means it's still a nascent business in many of those markets. But what we've seen is, once we have the technology in place, once we can marry that with the know-how, it's out-distancing our expectations and really drives the solution that is the omnichannel experience for the consumer where it's seamless between a store and online. We still have work to do. There's always work to do, particularly on the technology side, further integrating those 2 experiences. So they are ultimately totally seamless at the consumer lens. I would say in the U.S., we did -- we have seen a little bit of a swoon in the summer on e-comm. I mean part of that is last year at this time, we had to push consumers to e-com because we were all experiencing gluts in distribution, but shortages in store. But it's still a very healthy contributor to our business. Overall, kind of globally, if you take global sales, e-com is about a mid-teens penetration overall. China is our most penetrated market because it's also the leading dynamic of how consumers buy footwear and apparel in China, but the other markets are catching up fast.

Do you have an ultimate target or goal for where you think e-commerce can go? And is there -- maybe talk a little bit about the margin profile, e-com versus brick-and-mortar?

Yes. We don't really have an overt target because, again, our ultimate objective is to not talk about it from that perspective because I don't think consumers buy from that perspective. I don't -- I should use my wife as an example, probably. She doesn't sit around say I'm going to buy something online or I'm going to buy something in store. She just says she's going to buy something. And then it's really how do you reduce the friction to both selection and quite frankly, how urgent is the need, right? And I think what we really want to do is push our business to the point where it's easy for you to choose option A as it is to choose option B, the selection is similar. And really, the variability will be in kind of delivery, when you need to consume it more than anything else. And so we don't really have a preset objective because I'm happy if you search right now online, but then you go into a store and buy a pair of shoes because you're leaving for Europe tomorrow. I'm equally happy if you're not leaving for another week and you can just place the order now and it will arrive on Monday. So it's not something we want to take aim at because if we do, it might not be with the end consumer in mind first. I do believe fundamentally, it's more likely they not inclined to go north from an e-com penetration, but that's more going to be an [indiscernible] of how consumers behave than how we want to ultimately position the business. From a margin -- from a gross margin perspective, e-com is actually, right now, one of our higher contributors from a gross margin perspective. It obviously is a little bit more focused on in-line product whereas some of our other formats blend in line and offline product. In terms of an operating margin, it's generally close. It's a little bit difficult to measure sometimes, though, because we are trying to operate those business so intertwined with the retail. So we don't take every step to say if you buy online and you return in store, whose return is that? So -- but I think collectively, we're very comfortable with the margin that it supports DTC as a whole.

Let's talk about China. So checks out of China have been negative in the 3Q. 2Q, everyone seems to have done pretty well. And you mentioned at the conference last week, you're recently there. And you're fairly encouraged "by what you saw." I mean, can you just provide some detail on the demand environment there, what you're seeing from your perspective?

Right. I mean the first thing, and we noted this before, I mean, I think it really depends on how you view China going into the year. I think some people had very robust expectations. Ours were a bit more muted. And so in all honesty, relative to where we started the year, it's actually gone better than we thought. So that bit for us has been encouraging. I would say having been there, I actually -- I think it's probably much more of a normal environment on the ground there than we all read about day in and day out. It's not that there aren't struggles. I think there's certainly a recognition that some of the property issues and some of the demand declines for the export market are having an impact. But I would say there's an optimism that the country is working through that, and it's getting back into a position where you will start to see more normalized consumer behavior going into '24. The most encouraging thing really about China this year for us has been the reemergence of consumers in physical stores because so much of the growth over the last couple of years, particularly in COVID had to be driven by e-com. It's just good to see people out shopping again. And so traffic levels are up. Our stores have had some of the best months in a long time. It's not back to normal, but it's certainly the type of behavior we want to see before we expect China to get back to a kind of a baseline normality. In terms of that market specifically, long term, there's no question for us it's going to be a growth market. It's going to be a market we continue to invest in. We're building a second distribution center. We're rolling out more stores. We're incredibly encouraged by what we see. It may mean that China has a little bit of a rocky path for the next couple of quarters, but long term, it's absolutely going to be one of our leading growth markets. And again, I would just add on the ground there, it certainly didn't feel like all the press we read about here. It felt a bit more normal than I would have expected.

How are you planning that business in the second half? Are you planning it up? Are you planning it down? Just maybe give a little bit of color around?

Yes, we had originally planned it up. I mean I would tell you, we thought originally the first half of the year was going to be pretty tough and then the back half of the year had opportunity. The first half of the year was better than we thought. We still think the back half has opportunity. To keep in mind though, what will really determine the back half of the year is where things go on Singles Day. That's still the event. That's still an important moment. And it's somewhat morphed into being an important moment in the market as a whole, not just with Tmall, although Tmall is certainly the single biggest driver. What you see nowadays is it's a bigger event than just online. It encompasses stores and other partners. Other partners who didn't start Singles Day are celebrating Singles Day. So now it's kind of taken on bigger import in the market. But it also, as a result, concentrates a lot of buying behavior in a short period of time. So that will be the next best indicator I think we can all look to judge where China is on its recovery. But I would again stress, no doubt in our mind, it will recover.

You could move to capital allocation. So just remind us again of your capital allocation priorities. How much you have left on your current share repurchase program? I mean, are there plans to continue to return more capital to shareholders?

No change fundamentally from where we like to put capital. Again, our first priority is always having a very foundationally solid balance sheet. We think that served us really well during the pandemic. And so maintaining kind of a top-tier balance sheet is always number 1. Number 2 is always investing in the business, investing for high return opportunities, be they new distribution centers, new stores, new technologies, or something like what we did in Scandinavia recently where we repurchased a distributorship or invested in expanding a market that had previously been under distributor control. We do look at inorganic opportunities, but certainly, I feel and I think the company feels it's better to be disciplined than reckless in that category even if you have the chance of potentially grabbing that next HOKA. It's something you have to be very disciplined about. So while we look at inorganic opportunities, it's not been a mainstay of how we choose to grow. And then when it comes to returning cash to shareholders, right now, we're primarily focused on buying back shares. We believe there's a significant discount in the marketplace to our shares relative to others who are performing almost as good as we are. And so that's the highest return opportunity on capital redeployment at the moment. It doesn't mean we won't look at other formats, but by and large, that's the most -- we think the highest return opportunity for us to get cash back to shareholders. We have a significant balance left on our existing share repurchase. To be fair, I'm sure we're still buying today. So I don't know exactly how much, but it's still something we'll continue to draw down on. And again, our primary goal there is to make sure at the very least, we're offsetting dilution that comes from kind of just the natural grand activity in the market, but also we'll look for opportunities where we think there's a very favorable valuation arbitrage to play.

Great. Well, I think that's -- we've hit time here. So John, thank you again for being here, and we appreciate all the color. Thank you.

Thank you.