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Skechers Reports Strong Fourth Quarter and Full Year Results in 2024

Diverse Investments and Strategic Partnerships Drive Growth

Skechers continues to enhance its marketing efforts with a blend of celebrity endorsements and regional influencers. The brand’s roster features notable names such as Howie Mandel, Martha Stewart, and K-pop star Cha Eun-woo, which has helped broaden its appeal in various markets. This year, the company is set to showcase a memorable Super Bowl advertisement starring Kansas City Chiefs coach Andy Reid, highlighting the importance of hands-free comfort.

As Skechers aims to improve the shopping experience, it is expanding its direct-to-consumer business. Plans include the introduction of the first interactive performance store in Canada and increased wholesale offerings through shop-in-shops and brand takeovers. By adopting this strategy, the company hopes to increase efficiency, promote innovative products, and ensure that footwear is accessible to customers worldwide.

Examining the fourth quarter results closely, Skechers recorded impressive sales of $2.21 billion, a result of strong performance across various regions. Specifically, domestic sales grew by 18%, while international sales saw a 10% increase. The Americas experienced particular growth, with a 14% rise attributed mainly to solid performance in the U.S. and Canada. The EMEA region shined with a 25% increase, while sales in the APAC region improved by 3.3%, thanks to double-digit gains in markets like India, Japan, South Korea, and Thailand, despite a decline in China.

Wholesale channels also posted robust results, growing by 17% overall. Domestic wholesale sales surged by 31%, driven by the popularity of Skechers’ comfort technology products, which led to significant increases across footwear lines for men, women, and children.

For the direct-to-consumer segment, sales advanced by 8.4%, with 9.3% growth internationally and a 6.8% increase in the domestic market. The holiday season proved especially beneficial, with a rise in in-store shopping observed in nearly every market, including China. E-commerce sales were also notably strong in the Americas and EMEA regions, despite challenges faced in the APAC area.

Skechers concluded the quarter with 5,296 stores worldwide, including 1,787 owned locations, 610 of which are in the United States. During this period, the company opened 77 new stores, expanding its footprint with new locations in China, Canada, Colombia, and Mexico. Additionally, the company marked its presence in the Philippines and Prague, while closing 33 underperforming stores. The total count for third-party stores stands at 3,509, with 121 new openings this quarter, predominantly in China and other emerging markets.

Looking forward, Skechers plans to open between 180 and 200 new company-owned stores in 2025 as part of its growth strategy. They aim to enhance their distribution centers in the U.S., Europe, and China to efficiently meet product demands while continuing to improve their product offerings and direct-to-consumer capabilities.

John M. Vandemore — Chief Financial Officer

Thank you, David, and good afternoon, everyone. Skechers delivered another year of outstanding results in 2024 as we continued executing against our long-term growth algorithm, which is rooted in our innovative comfort technology products and a compelling value proposition. For the full year, Skechers achieved constant-currency sales of $9.04 billion, an increase of 13%, and earnings per share of $4.40, an increase of 26%. Gross margins were 53.2%, and we obtained a double-digit operating margin of 10.1%.

In the fourth quarter, sales reached $8.97 billion, a 12% increase, with earnings per share rising 19% to $4.16. Despite foreign currency exchange challenges following the U.S. elections, we experienced a rebound in sales across many segments. Our 2024 achievements are particularly notable, especially with strong performances in domestic wholesale and international markets like EMEA.

Despite challenges such as the macroeconomic situation in China and disruptions in the global supply chain, our performance underscores the effectiveness of our diversification strategy. In the fourth quarter alone, we reported $2.21 billion in sales, reflecting growth across all segments and geographies. Direct-to-consumer sales increased by 8.4% year over year to $1.08 billion, while international sales grew by 9.3% in most markets, particularly in retail and e-commerce channels. Domestic sales also showed notable growth at 6.8% following last year’s impressive performance.

The holiday shopping period this year was marked by strong online sales, reinforcing consumer loyalty to the Skechers brand. Wholesale sales increased by 17% year over year, amounting to $1.13 billion, with domestic sales climbing 31% on the back of robust consumer demand and a healthier market landscape.

In terms of regional sales, the Americas led with a 14% gain, totaling $1.09 billion, driven by strong wholesale performance and growth in direct-to-consumer sales. EMEA experienced a remarkable 25% uptick to $478.6 million, while Asia Pacific’s sales rose 3.3% to $642.4 million, excluding China, where sales surged by 26%, primarily due to success in India.

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Strong Financial Results Mark Skechers’ Latest Quarter

Substantial Gains Despite Challenges in Key Markets

Skechers recently announced another strong quarter, achieving significant gains across multiple channels, with nearly every market contributing positively. However, in China, the company faced a tough economic landscape, leading to an 11% decline in fourth-quarter sales. Despite this, gross margin improved to 53.3%, which is an increase of 20 basis points from the previous year, mainly due to a favorable mix of sales channels.

Operating expenses fell by 70 basis points to 45.8% of sales compared to the year prior. Selling expenses dropped by 40 basis points to 8.9%, as the company cycled past high spending last year aimed at enhancing brand awareness and educating customers about its comfort technologies. General and administrative expenses decreased by 30 basis points to 36.9%, primarily from improved distribution and services. Earnings from operations rose to $165.5 million, a 27% increase year over year.

The operating margin for the quarter reached 7.5%, up from 6.6% last year. Over the full year, Skechers reported a double-digit operating margin of 10.1%. Notably, foreign currency exchange rates negatively impacted results, contributing $34.7 million to the other expense line, which is an increase of $45.1 million from the prior year. The effective tax rate for the fourth quarter was 11.8%, down from 20.3% in the previous year, due to a favorable mix of earnings in lower-tax areas.

For the complete year, the effective tax rate averaged 16.9%, down from 18.8% the year before. Moving forward to 2025, the company anticipates several important factors, including new global minimum tax regulations, which will influence future tax rates and earnings. Earnings per share for the quarter were $0.65, reflecting a 16% increase from the previous year, based on 152.2 million weighted average diluted shares outstanding. Adjusted for constant currency, earnings per share rose to $0.86, representing a substantial 54% increase.

Examining the balance sheet reveals that inventory reached $1.92 billion, marking a 26% increase, which translates to an additional $394 million compared to last year. Elevated in-transit inventory levels in the EMEA region stemmed from longer shipping times linked to the Suez Canal closure. Skechers is actively working to manage inventory levels, especially in China, where improvements have been noted. Accounts receivable increased to $990.6 million, reflecting a rise of $130.3 million due to higher wholesale sales.

The company ended the quarter with $1.38 billion in cash and cash equivalents, resulting in total liquidity of $2.13 billion, including its revolving credit facility. Capital expenditures for the quarter amounted to $133.4 million, with $54.5 million invested in distribution infrastructure, $51.3 million in new store openings and improvements to direct-to-consumer technologies, and $15.6 million allocated for expanding corporate offices. During this past quarter, Skechers repurchased about 1.9 million shares of Class A common stock for $120 million, bringing the total repurchased for the year to approximately 5.2 million shares at a total cost of around $330 million.

Skechers remains committed to its capital deployment strategies while ensuring a robust balance sheet and sufficient liquidity. As they look to the future, various challenges are anticipated, including adverse currency exchange impacts, new minimum tax regulations, and sustained macroeconomic issues in China. Additionally, recent U.S. tariffs on imports from China have created uncertainty around future projections. The company has not fully integrated these factors into its guidance but expects to respond with actions like production reallocations, vendor concessions, and pricing adjustments.

For 2025, Skechers forecasts sales in the range of $9.7 billion to $9.8 billion. This projection includes approximately $200 million in foreign exchange headwinds, roughly translating to a 200 basis point impact on organic sales growth. Earnings per diluted share are estimated to be between $4.30 and $4.50, impacted by currency fluctuations and the anticipated effects of new tax regulations, which may raise the effective tax rate to between 22% and 23%. A decline in minority interest by mid-teens is also expected, alongside capital expenditures projected to range from $600 million to $700 million as Skechers continues investing in its strategic initiatives.

Sales for the first quarter are anticipated between $2.4 billion and $2.425 billion, with net earnings per share expected to be between $1.10 and $1.15. These figures account for the comprehensive effects of currency issues and taxes, along with an increase in demand creation spending.

Despite the uncertainties ahead, Skechers remains optimistic about its long-term strategies and is committed to reinvesting in the business for sustainable growth, focusing on delivering quality, stylish, and comfortable products at reasonable prices. The company looks forward to sharing its first-quarter financial results, expected to be released on Thursday, April 24th, 2025. Now, I will hand the call to David for his closing remarks.

David Weinberg — Chief Operating Officer

Thank you, John. The strong global demand for our varied product lines enabled us to achieve a record annual sales total of $9 billion at constant currency. This success stems from our unique market position, which blends comfort, innovation, style, and quality at prices that are accessible to consumers. We continue to enhance our product offerings, introducing new comfort technologies and expanding our lineup, including the latest Skechers Cricket available in India.

In our pursuit of growth, we remain committed to our core business while recognizing the importance of our performance division that includes footwear for basketball, soccer, golf, running, and pickleball. As we adapt to the changing needs of consumers globally, we are investing in our operations. This includes upgrading our distribution capabilities in the U.S., China, and Europe, enhancing customer experience through our direct channels, and increasing sales points through retail partnerships. We believe our strategic focus on product innovation, marketing, and operations, led by our dedicated team, will yield significant results and ongoing profitable growth in the future.

We appreciate the efforts of the entire Skechers organization. Now, I will turn the call back to the operator to facilitate questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Jay Sole with UBS. Please proceed with your question.

Jay Sole — Analyst

Great. Thank you so much. David and John,

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Financial Insights: Gross Margins and Operating Performance in Fiscal 2025

John M. Vandemore — Chief Financial Officer

Thank you for your question about fiscal 2025 gross margins. Understanding the full scope of our guidance is crucial, especially with notable changes happening this year. The global minimum tax regulations will play an essential role, so it’s vital to keep that in mind.

Over the past three years, we have worked hard to improve our gross margins. This positive trend has been observed across all business segments, including wholesale and direct-to-consumer (DTC). Looking ahead, we do not expect significant changes in overall gross margins. The business growth appears well-balanced, though we might not experience the same level of incremental growth from international and DTC sectors that we have seen in the past. The consistent growth across our channels is encouraging.

However, we anticipate some variability in quarterly results. Upcoming tariffs could affect margins, but our history shows we have the capacity to manage these challenges effectively. Overall, we aim for stability, with minor fluctuations expected throughout the year. Given past improvements, we’re optimistic about maintaining the gross margin progress.

Jay Sole — Analyst

That sounds promising. To clarify, you’re suggesting that growth across channels and regions will lead to a gross margin outlook similar to previous years, correct?

John M. Vandemore — Chief Financial Officer

Yes, that is correct.

Jay Sole — Analyst

Thank you for the confirmation.

Operator

Thank you. Next, we have a question from Laurent Vasilescu with BNP Paribas.

Laurent Vasilescu — Analyst

Good afternoon, David and John. I appreciate your insights. I’d like to follow up on margins. I’m analyzing EBIT margins, which seem to suggest a decrease of about 150 basis points this year. Given that gross margins are expected to remain flat, is there an issue related to SG&A impacting operating margins?

John M. Vandemore — Chief Financial Officer

That estimation seems a bit too severe. Our goal is to maintain the double-digit operating margin we recently achieved. While factors like foreign exchange and the current situation in China could influence performance, we’re actively managing inventory, which has already shown a sequential decline.

I would prefer to steer expectations toward a flat margin outlook. If we can achieve that, it would suggest we navigated external factors like foreign exchange and China effectively. If discrepancies arise, I don’t foresee them being significantly different from our previous year’s performance.

Laurent Vasilescu — Analyst

That’s helpful information. Moving on to U.S. wholesale, it seems you’ve had a fantastic quarter. You’ve previously targeted mid-single-digit growth for that channel. Should we expect similar growth this fiscal year, or might it fall short of that given last year’s performance? Additionally, regarding foreign exchange, I noted a $0.21 hit in the fourth quarter; how do you expect FX to affect FY 2025 EPS?

John M. Vandemore — Chief Financial Officer

Your observations highlight an impressive rebound in the domestic wholesale arena, thanks to our team’s excellent work and marketing efforts. This revival after a challenging year is commendable.

As we look forward, I anticipate a return to mid-single-digit growth for U.S. wholesale in alignment with our long-term targets. There is potential for slightly better performance, given opportunities that exist, but replicating last year’s exceptional growth of nearly 20% may prove difficult. The current wholesale market environment presents challenges.

Regarding foreign exchange impacts, while predicting FX outcomes is complex, I estimate the effect will range between $0.15 and $0.20 moving into FY 2025. We’ve seen significant currency movements since the U.S. elections, leading to a stronger dollar and a noticeable impact on our results in the fourth quarter—more than we anticipated.

This environment has been unusual, with currencies generally weakening against the dollar, affecting our foreign-denominated balance sheet items. We recognize there will be a future benefit when the situation stabilizes, but for now, the impacts have been significant.

It’s essential to adjust expectations given these extraordinary FX impacts. The as-reported results have fallen below our previous guidance, yet adjusted metrics reveal better performance on both sales and earnings.

This context around foreign exchange should be considered in evaluating our overall financial position moving forward.

David Weinberg — Chief Executive Officer

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Analyzing Recent Financial Insights from Industry Leaders

Laurent Vasilescu — Analyst

In this quarter, the effects of currency fluctuations are worth mentioning. The balance sheet items may not show improvement even if currency conditions do. This primarily concerns volumes and profitability; the balance sheet impact may lessen.

This shift can ease some of the issues while presenting opportunities as conditions improve.

Operator

Thank you. Our next question comes from Alex Straton with Morgan Stanley. Please proceed.

Alex Straton — Analyst

Thanks for taking my question. I want to focus on the international sector of the business. Revenue seems to have slowed a bit compared to the previous quarter.

Could you clarify if there were any changes in this area, and what are your projections for 2025? Additionally, regarding the tax adjustments, should we anticipate these changes to continue going forward? Thank you.

John M. Vandemore — Chief Financial Officer

Addressing the international segment, this quarter was negatively affected by China, as revenues there dropped by about 11%. Excluding China and a couple of other markets, we experienced strong performance in various regions and channels globally.

We feel optimistic about the international market and the potential for growth, despite some delays in product delivery that may have limited our performance. China, due to its scale, presents a significant challenge in the Asia-Pacific region.

Looking ahead, we project growth in the mid to high single digits, possibly reaching the teens. Foreign exchange fluctuations will impact those numbers, with an estimated $200 million headwind based on current rates. If currency rates shift, they could create a favorable tailwind for us.

As for the global minimum tax legislation, which is being implemented worldwide, we are just beginning to gauge its effects. With our historical tax efficiency, the impact depends greatly on how different jurisdictions deploy the OECD’s tax framework. While regulations are solidifying, the minimum rate set at 15% likely means higher taxes for us moving forward. We plan to take steps in the short term to manage this situation, but expect it to become a standard rate. The influence of regulatory changes on this issue remains to be seen, especially given past administration support for it.

Alex Straton — Analyst

Thank you. Best of luck going forward.

Operator

Thank you. Next up, we have Adrienne Yih from Barclays. Please go ahead.

Adrienne Yih — Analyst

Thanks for the opportunity. John, you mentioned a higher focus on demand creation. Could you provide some context on this, particularly in light of the strong growth we saw last year? Also, what are your expectations for stabilizing operations in China? Additionally, can you recap your strategies for mitigating the impact of tariffs, especially considering your significant sales in the Asia region?

John M. Vandemore — Chief Financial Officer

Let’s start with tariffs, as you anticipated this question. Our approach remains similar to what we discussed during our last tariff conversation four years ago. We’re focused on optimizing our manufacturing relationships to navigate tariff structures effectively. Conversations with vendors are underway, and the stronger dollar could play a role in our strategy.

Price adjustments and inventory management will also be critical tools, particularly as we prepare for the possibility of higher rates. Currently, our existing inventory is not subject to these new rates, providing us some leeway. Given the unpredictability of these policies, we are prepared to act quickly if necessary.

Now, regarding marketing strategies, we plan to concentrate our efforts in the earlier part of the year. We had a successful year with increased marketing spend last year, and we expect to maintain a similar overall budget this year, albeit weighted towards the first quarter.

In terms of operations in China, our team is actively working to manage market conditions. Importantly, this is a broader macroeconomic challenge, not confined to a single brand or product category. We are implementing strategies to ensure our inventory remains fresh and is moving more quickly than in the past. We started this process in the fourth quarter and will continue to do so in the first quarter. Our marketing efforts, focusing on promoting our comfort technologies, will also be targeted at the Chinese market, where brand awareness has room to grow.

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Strong Growth and Strategic Investments: Insights from Company Executives

David Weinberg — Chief Operating Officer

Throughout the challenges posed by tariffs in various global markets, our large-scale operations have remained resilient. In regions like India, Mexico, South America, and Europe, we’ve faced changes, yet we’ve managed to navigate these circumstances effectively. Our history shows that we usually emerge from such trials in a stronger position.

We have adapted our production and adjusted prices as necessary. Consistent product development allows us to incorporate more features that justify these price increases. Although the current situation is tough, it is not the worst we have experienced, and we are confident we will navigate it well. To address market demand, particularly in China, we have decided to amplify our advertising and product offerings in the first and second quarters. Despite volume challenges, reinforcing our presence in that market is crucial.

Even as the company grew by 12% last year without demand from China, we expected to face difficulties due to an over-reliance on that market. Current projections do not anticipate significant growth in China this year, yet this only highlights the strength of our brand’s performance globally. Overall, we believe we are well-positioned for the year ahead, despite existing uncertainties.

Adrienne Yih — Analyst

Thank you very much. Best of luck.

David Weinberg — Chief Operating Officer

Thank you.

Operator

Thank you. Our next question comes from John Kernan with TD Cowen. Please proceed with your question.

John Kernan — Analyst

Good afternoon. Thank you for taking my question. I’m interested in your capital expenditures, projected to hit $700 million at the high end. Can you explain where this money will go and what you consider a normalized spending rate? It seems this is about 7% of sales, while many competitors are around 2%.

John M. Vandemore — Chief Financial Officer

I had a feeling this question would come up. Consider our expenditures in two main categories. First are the routine investments, which include store development and technology upgrades. We’re also expanding our corporate campus and continuously investing in distribution centers. Occasionally, we must undertake larger projects to ensure our operational capacity for the next decade or so. Currently, two significant projects are in progress.

One involves expanding our distribution center in China, and the other focuses on increasing storage capacity in the U.S. This opportunity is advantageous because it complements our current facility, enabling better logistics and efficiency. Timing for these projects is critical and is driving the higher forecast. If you exclude these projects, the spending would appear more aligned with our historical averages.

David Weinberg — Chief Operating Officer

To add details about our U.S. investments, we currently operate two costly off-site facilities, which have led to inefficiencies. This new building, which will now be part of our joint venture, is important for our operations. While these investments increase expenses temporarily, they are necessary for improved efficiency as we streamline our direct-to-consumer and e-commerce processes. We faced similar growth challenges in Europe, where we achieved a 25% increase in recent reporting periods. We are also modernizing facilities to cope with increased demands and logistical challenges.

John Kernan — Analyst

That adds clarity, thank you. One quick follow-up: After reaching approximately $10 billion in revenue, where do you see opportunities for margin improvement in the future? Will it come from gross margins or efficient management of selling and administrative costs?

David Weinberg — Chief Operating Officer

Many factors will influence that, including our growth pace. If our investments bring faster growth, as we expect, there will be opportunities to increase margins. However, those decisions will rely heavily on how we adapt to the market demand globally.

John M. Vandemore — Chief Financial Officer

Yeah…

Financial Outlook: Growth Strategies and Market Insights

Key Investments Ahead

We’re cautious about declaring our anticipated $10 billion in revenue as a success before it actually happens. However, we are optimistic as that goal is within reach.

Echoing David’s earlier thoughts, numerous factors will contribute to our profit and loss (P&L) outcomes. The critical question lies in the potential growth available for the business. Each year, we consistently invest in expanding our operations.

New store openings are a significant part of this growth. Each new location initially brings a financial challenge until it becomes fully established. Once our growth slows, we expect to benefit from these investments since we will not need to spend as much on expansion.

Our goal is to maintain the operating margin we achieved in 2024 while searching for further growth opportunities. We’re committed to exceeding the $10 billion target as we believe there’s room for continued growth, especially with our innovative products and technologies.

John Kernan — Analyst

Go, Eagles! I anticipate next year needing some collaboration with Nick Sirianni, but let’s see how it unfolds.

David Weinberg — Chief Operating Officer

We’ll let you bring that up with Coach Reid.

John Kernan — Analyst

Thanks, everyone. Take care.

Operator

Thank you. Our next question comes from Rick Patel with Raymond James. Please proceed.

Rick Patel — Analyst

Thank you. Good afternoon. Can you discuss the expected growth this year? Your guidance suggests a modest increase as the year progresses. What factors are influencing this outlook, especially regarding any irregularities in the wholesale sector?

John M. Vandemore — Chief Financial Officer

The most significant influence will likely be China. Last year, the first quarter marked the peak of growth, which has since declined. This makes our current comparisons slightly challenging.

We also recognize that spring shipment timings can vary, so we’re monitoring that closely. However, China’s performance stands out as the primary factor.

Rick Patel — Analyst

Moving on, can you tell us about your entry into basketball cleats and running shoes? Do you anticipate 2025 as a pivotal year for these ventures, and how will your go-to-market strategy evolve by channel?

David Weinberg — Chief Operating Officer

We are currently testing the waters in various markets worldwide. We are introducing our products and gauging player interest without forcing the pace. The reception and performance of our products will dictate how quickly we expand. Presently, we see strong interest, especially in our soccer products outside the United States, with growing inquiries regarding basketball gear.

At this stage, a significant push in 2025 is unlikely, although we do foresee potential for growth as the year progresses.

John M. Vandemore — Chief Financial Officer

I would like to add that we plan to explore additional sports, creatively aligning them with our recent performance. The goal is to continue raising awareness about our expanding categories, enabling us to capitalize on market opportunities.

Rick Patel — Analyst

I look forward to witnessing these innovations. Thank you.

Operator

Thank you. Our next question comes from Jesalyn Wong with Evercore. Please proceed.

Jesalyn Wong — Analyst

Thanks for addressing my queries. The EMEA region showed impressive growth this quarter. Were there specific categories that contributed to this success? Also, regarding performance products, what percentage of sales does this category currently represent? And what future contribution do you foresee?

John M. Vandemore — Chief Financial Officer

We don’t typically disclose detailed performance data by category. However, I can share that performance does not currently dominate our business. The term ‘performance’ varies in meaning across markets.

What excites us about expanding this category is the ability to tap into new markets while revitalizing existing ones. This not only attracts new customers but also enhances overall brand awareness.

The EMEA region continues to excel, supported by strong demand for products featuring our Skechers Hands Free Slip-ins Technology and other comfort innovations. Both wholesale and retail segments are thriving, showcasing our brand’s resonance with consumers.

Jesalyn Wong — Analyst

Thank you. Regarding China, do you expect growth to improve in the latter half of this year?

John M. Vandemore — Chief Financial Officer

This connects back to Rick’s previous question. Last year’s first quarter was particularly vibrant, leaving us with a challenging comparison for this quarter. Overall, we anticipate positive improvements throughout the year following this initial phase.

Insights from Recent Earnings Call: Inventory Management and Market Trends

Forecasting Improvements in Sales

The company anticipates gradual improvements throughout the year, with current challenges most prevalent in the first quarter.

Jesalyn Wong — Analyst

Got it. Thanks, guys.

Operator

Thank you. Next, we have a question from Krisztina Katai with Deutsche Bank.

Krisztina Katai — Analyst

Hi. Good afternoon. Thank you for taking my question. I want to ask about inventory levels and their overall composition.

You’ve indicated progress in China quarter over quarter. However, how do you view overall inventory levels, which are up 26%, relative to your 13% sales growth? Additionally, can you provide more details about your strategies to move inventory more quickly? Thank you.

John M. Vandemore — Chief Financial Officer

The inventory situation is quite healthy. The main driver of the year-over-year inventory increase is merchandise currently in transit, especially affected by extended transit times in Europe.

Compared to last year, we continue facing these longer transit times, which necessitate holding more inventory. Importantly, this is not older inventory; it’s product actively shipping to markets, which we feel confident about. Regarding China, we observed Singles’ Day and its effects on our strategy for inventory movement.

This year’s Singles’ Day outcomes were somewhat disappointing. Due to this, we plan to take steps to expedite moving units now in the first and second quarters. Our goal is to make space for new products and comfort technologies that need to reach consumers.

Moving inventory efficiently is critical for our business and benefits the consumer as well. We’ll continue to manage inventory proactively.

David Weinberg — Chief Operating Officer

Notably, we made strategic choices to maximize our shipments to Europe early in the quarter, as it represents our largest segment in EMEA. With the Suez Canal blockage adding approximately four weeks to transit times, we sought to bring in all inventory as early as possible. This approach meant that new stock arrived sooner than in previous years, ensuring we’re fully stocked for growth this quarter.

Krisztina Katai — Analyst

Great. Thank you for the insight, and good luck.

Operator

Thank you. Our next question comes from Chris Nardone with Bank of America. Please go ahead.

Chris Nardone — Analyst

Thanks, everyone. John, can you elaborate on the 31% growth in U.S. wholesale sales this quarter? Are you concerned about footwear inventory levels within that channel? How do you plan to address potential pricing pressures from tariffs?

John M. Vandemore — Chief Financial Officer

The domestic wholesale sector has thrived due to strong performance from several key accounts and recent marketing successes, including brand takeovers that drove excellent sales. We don’t see any inventory issues in the wholesale channel; in fact, strong demand and sell-through rates continue.

David Weinberg — Chief Operating Officer

From a shipping standpoint, we are not noticing any slowdowns that would impact wholesale demand. Our customers remain eager for inventory throughout January, post-fiscal year-end.

Operator

Thank you. Our next question comes from Tom Nikic with Needham & Company.

Tom Nikic — Analyst

Thanks, guys. John, you mentioned that minority interest would decline in the mid-teens this year. Is this primarily due to sales expectations in China, or are there other factors at play?

John M. Vandemore — Chief Financial Officer

While I won’t break it down by country specifically, the primary factor driving the decline in minority interest is indeed related to China, though other markets are also affecting the overall business.

Tom Nikic — Analyst

Understood. About the inventory growth, it seems quite high. Removing in-transit factors, do you believe your remaining inventories align well with expected growth for ’25?

John M. Vandemore — Chief Financial Officer

Absolutely. Our on-hand inventory levels increased by 12%, indicating that the bulk of our growth is attributed to in-transit items. Improvements in China’s on-hand inventory were also noted. We reference in-transit inventory because it has significantly impacted our increases over recent quarters, particularly during the Suez Canal crisis.

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Company Insights: Shipping Dynamics and Technology Innovations

Increased Shipping Delays and Inventory Management

According to recent analysis, Europe has seen a significant rise in shipping delays, accounting for 60% to 70% of the annual increase in in-transit goods. This situation illustrates both current trends in the shipping market and geopolitical influences. However, Chief Operating Officer David Weinberg reassured stakeholders that the inventory piling up is quality, backed by orders, enabling the company to manage and process it efficiently.

Technological Advancements in Comfort Products

Anna Andreeva from Piper Sandler inquired about the advancements in comfort technologies, noting their growing success. She asked how innovation would progress into the first quarter and throughout the year. Additionally, she referenced a slight decline in average selling price (ASP) across channels, questioning if a price recovery might be anticipated in the coming year.

Price Dynamics and Consumer Behavior

John M. Vandemore, the Chief Financial Officer, explained that U.S. and international pricing trends must be analyzed separately, particularly with foreign exchange rates playing a role abroad. In the U.S., the introduction of comfort technologies across various product categories has resulted in lower ASPs, as customers are now exploring diverse price points. He noted that while some technology was included in promotions throughout the year, future price erosion is not expected. Prices are likely to stabilize or potentially improve.

Future Innovations and Expanded Categories

Vandemore emphasized the versatility of comfort technologies, which can be incorporated into a broad range of products. Successful innovations, like the Skechers Hands Free Slip-ins Technology, are set to continue driving growth. Additionally, performance categories previously outside the company’s offerings have begun integrating comfort features, reinforcing their strong market identity.

Concerns About Freight and Gross Margins

Anna Andreeva’s follow-up centered on gross margins, specifically regarding freight costs expected to act as a headwind in the fourth quarter. Vandemore confirmed slight freight pressures in Q4 and anticipated similar trends through the first two quarters of the next year, but not at a critical level. Furthermore, COO David Weinberg noted that alternative sourcing strategies will play an important role in mitigating these challenges.

Freight Rate Predictions and Market Trends

Vandemore highlighted that spot rates for shipping have returned to more normalized levels after a spike linked to the summer pressures seen during the Suez Canal crisis. This improvement should provide some relief to the company’s shipping costs moving forward.

Q1 EBIT Margin and Other Financial Insights

Analyzing the earnings before interest and taxes (EBIT) margin, Samuel Poser from Williams Trading sought clarity on the expected range for the upcoming quarter. Vandemore refrained from providing specific guidance on other income but predicted a potential $0.15 to $0.20 impact due to foreign exchange fluctuations, particularly in the first half of the year. He also mentioned a possible tax rate impact ranging from $0.25 to $0.30.

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Financial Insights from Skechers’ Earnings Call

Q1 Expectations and Operating Margins Explained

Samuel Poser — Analyst

I comprehend the full-year expectations. However, Q1 appears to have the most significant fluctuations. Can you clarify your predictions for operating margins specifically in Q1? We seek a clearer understanding of where you see EBIT, as that information helps us project the rest of the year. Your piecemeal information has been helpful, but we want to prevent scenarios where you either meet or miss numbers without a solid baseline.

John M. Vandemore — Chief Financial Officer

Sure, I don’t want to get bogged down in specifics. We expect SG&A costs to experience deleverage during the first and second quarters, with the potential for recovery in the latter half of the year. This could result in a fluctuation of plus or minus 150 to 250 basis points impact in Q1. However, this is a broad estimate and hinges on several unpredictable factors. There is also potential for better-than-expected results if shipping trends improve.

The Impact of China and Currency Exchange

Samuel Poser — Analyst

Regarding China, it seems to pose a larger headwind than anticipated for this year. Is most of the revenue shift due to China, or are there other underlying factors?

John M. Vandemore — Chief Financial Officer

The primary influence affecting our forecasts stems from foreign exchange (FX) rates. China’s performance in Q4 was notably weaker than expected, particularly as we analyzed the impact of Singles’ Day and the following return window.

The outlook for Q4 and early 2025 appears less favorable than we initially projected. However, the overall global performance, particularly in EMEA and the Americas, shows significant strength. Excluding China, the Asia Pacific region also demonstrates robust growth. Hence, while China presents challenges, other markets are thriving, and we must focus on improving the Chinese market environment.

Resource Management and Growth Prospects

David Weinberg — Chief Operating Officer

To contextualize our growth, we generated nearly $900 million without any market improvement in China. If this trajectory holds, we could offset China’s volume in less than two years. We believe that as we continue to grow, China will eventually contribute to that growth as well.

Our focus remains on enhancing demand within China and strategically rolling out new developments geared towards this market. We anticipate significant progress by the latter half of this year despite current difficulties.

Samuel Poser — Analyst

In Europe, with much inventory currently in transit, is there a constraint on sales because of this situation?

David Weinberg — Chief Operating Officer

The inventory was in transit as of December 31st, and we indeed saw some stock increases. Much of our current effort involves processing this inventory, which we expect to have available for Q1, driving future sales.

Samuel Poser — Analyst

Did the inventory situation negatively impact sales in Q4?

David Weinberg — Chief Operating Officer

The exact implications are hard to determine. We noticed a minor dip in December sales, possibly due to a shift of business from December into January. However, our overall sales performance over the holiday season remains satisfactory. A strong October led to inventory delays, influencing December and January dynamics. Going forward, we expect a significant demand increase, now that our inventory issues are resolved.

Closing Remarks

Operator

That concludes the question-and-answer segment. I’ll turn it back to management for any final comments.

John M. Vandemore — Chief Financial Officer

No further comments from my end. Thank you for your participation. We look forward to our next discussion at the conclusion of Q1.

Operator

[Operator signoff]

Duration: 0 minutes

Call Participants

Jason D’Eath — Manager, Cybersecurity Engineering

David Weinberg — Chief Operating Officer

John M. Vandemore — Chief Financial Officer

Jay Sole — Analyst

John Vandemore — Chief Financial Officer

Laurent Vasilescu — Analyst

Alex Straton — Analyst

Adrienne Yih — Analyst

John Kernan — Analyst

Rick Patel — Analyst

Jesalyn Wong — Analyst

Krisztina Katai — Analyst

Chris Nardone — Analyst

Tom Nikic — Needham and Company — Analyst

Anna Andreeva — Analyst

Samuel Poser — Analyst

Sam Poser — Analyst

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