Skechers U.S.A., Inc. (NYSE:SKX) Q1 2024 Earnings Call Transcript

Skechers U.S.A., Inc. (NYSE:SKX) Q1 2024 Earnings Call Transcript April 25, 2024

Skechers U.S.A., Inc. beats earnings expectations. Reported EPS is $1.33, expectations were $1.1. Skechers U.S.A., Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Skechers’ First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn this conference over to Skechers. Thank you. You may begin.

Karen Lozano: Good afternoon, everyone. My name is Karen Lozano. I’m the General Manager of Store 2 in Gardena, California, and I’ve been on the Skechers team for an exciting 11 years. Thank you for joining our 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, challenging consumer retail markets in the United States, wars, acts of wars and other conflicts around the world 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 that the 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 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?

David Weinberg: Good afternoon, and thank you for joining us today for our first quarter 2024 conference call, which marks our 100th as a public company. We started the year with a new quarterly sales record of $2.25 billion an increase of 12.5% or $250 million compared to last year and an adjusted diluted earnings per share record of $1.33. Additionally, we achieved gross margins of 52.5% and an operating margin of 13.3%. These impressive results were driven by growth in both our reportable segments, direct-to-consumer and wholesale as well as across all regions of the world. The strong global demand for our brand was due to fresh innovations in our proven styles, a more robust offering of our many comfort technologies and the expansion of our performance and lifestyle divisions into new categories and collections.

These newer offerings include our partnership with Snoop Dogg and the Skechers football and basketball lines. As the comfort technology company, we focus first on delivering the ultimate and innovative comfort and style across our product lines, so that every pair looks and feels exceptional. This includes our machine washable footwear for kids, durable outdoor styles and sport styles and our street and court fashion collections. For our performance division, great attention and detail is paid to elevating the fit and comfort while meeting the needs of elite athletes and enthusiasts of football, basketball, golf, and pickleball as well as running and walking. Top professional athletes like Harry Kane, Oleksandr Zinchenko, Julius Randle, Terence Mann, Brooke Henderson, Matt Fitzpatrick, Catherine Parenteau and many others around the world are competing in Skechers and embracing our comfort that performs.

This enthusiasm from those at the top of their game is also resonating with consumers and the media, including Shape Magazine, which just named Skechers Viper Court the best pickleball shoe in their 2024 report and Sports Illustrated Germany, which featured Harry Kane on the cover wearing our SKX 01 football boots and Skechers performance apparel. The brand and each of these product initiatives are supported by impact for marketing initiatives. This year’s commercial for the Super Bowl with Mr. T and Tony Romo to our first basketball campaigns with Julius and Terence. In the quarter, we launched new Spots for kids, BOBS, Max Cushioning and Work all with Skechers Hands Free Slip-ins. And just last week, we added a new lineup of commercials that includes Skechers UNO with actress Ashley Park and GO WALK Slip-ins and Apparel with TV host Amanda Kloots.

Along with these on air campaigns, we employ a 360 degree marketing approach reaching consumers at multiple touch points. To achieve the notable growth that we have this quarter and to continue to meet the needs of consumers around the world, it takes the effort and dedication of the entire global Skechers team, our designers and supply chain partners who ensure our product is of the highest quality and our third-party retailers whom we have valuable relationships with. We thank each associate, employee and colleague for working together for our continued success. Looking at our first quarter results. Sales increased 12.5% to $2.25 billion. International sales increased 15% representing approximately 65% of our total sales in the first quarter and domestic sales increased 7.8%.

By region, EMEA increased 17%, APAC by 16% and the Americas by 7.8%. Additionally, both wholesale and direct-to-consumer grew nicely in the quarter. Our wholesale sales increased 9.8% reflecting a return to growth in both international at 11% and domestic at 7.7%. Internationally, the increase was due in part to improved inventory position at certain partners, the growth of our distributors across geographies and particularly strong sales in China, Germany and the U.K. For domestic, the return to growth was a result of significant improvement in the flow of orders with both improved ASPs and volume. Skechers is in demand by many of our customers around the world as is evidenced by our strong sales. Direct-to-consumer, which increased 17% continues to be an important segment of our business and an indicator of positive consumer appetite for our brand.

With growth in nearly every market for both our brick and mortar and e-commerce stores, we saw a 24% increase internationally and an 8% increase domestically. We ended the quarter with 5,203 Skechers branded stores worldwide of which 1,671 are company-owned locations including 565 in the United States. We opened 52 company-owned stores in the quarter including 22 in China, 10 in the United States, five in Colombia and two in both India and Korea. We closed 29 stores in the quarter. Also in the period, 95 third-party stores opened including 54 in China, nine in Indonesia and three each in Australia, the Philippines and Turkey. This brings our third-party store count at quarter end to 3,532. In the second quarter to-date, we’ve opened 15 stores including three company-owned stores in both China and the United States.

We expect to open 155 to 170 company-owned stores worldwide over the remainder of 2024. Our record sales in the quarter along with our efforts to manage inventory levels resulted in a 9.4% reduction year-over-year and an 11% reduction from December 31, 2023. We believe our inventory levels are healthy and comprised largely of proven sellers, fresh innovations and new product categories. To efficiently manage our inventory flow, we continue to invest in our logistic capabilities, including our new distribution center in Panama, which is expected to be operational in the second quarter as well as a new company operated DC in Colombia, which we plan to move into later this year. To efficiently grow our business worldwide and meet the needs of consumers seeking the ultimate and comfort technology, we continue to invest in our operations, product and marketing.

With our numerous accomplishments over the past quarter, we look forward to strategically growing our business in the coming year as well as in the years ahead. And now, I’d like to turn the call over to John, for more details on our financial results.

John Vandemore: Thank you, David, and good afternoon, everyone. Skechers delivered another strong quarter of record financial performance, exceeding both our top and bottom line expectations. Our diverse portfolio of high-quality products combined with our commitment to delivering these products at a reasonable price clearly resonates with today’s consumer. We achieved record sales of $2.25 billion growing 12.5% and earnings per share of $1.33 growing 30% year-over-year. On a constant currency basis, sales were $2.27 billion and earnings per share were $1.37. These results were driven by a healthy recovery in our wholesale segment, particularly in the United States and Europe and continued momentum in our direct-to-consumer segment.

Despite persistent economic headwinds, our performance this quarter underscores the strength of the Skechers brand worldwide and the consumer demand for our innovative products together driving us towards our goal of achieving $10 billion in sales by 2026. Consumers understand that comfort is no longer a luxury, but a requirement that shouldn’t come at a cost. Skechers excels where comfort and value intersect as evidenced by the strength of our global direct-to-consumer business, which grew 17% year-over-year to $829.9 million. These results were driven by double-digit growth in our e-commerce and brick and mortar stores and increases of 24% internationally and 8% domestically. Our commitment to prioritizing innovation and supporting this with effective marketing powered these results.

We remain excited about our omnichannel growth opportunities and we’ll continue to deliver on our strategy to expand our direct-to-consumer presence worldwide. In wholesale, sales increased 9.8% year-over-year to $1.42 billion with growth across all regions. As expected, we are seeing a recovery in domestic wholesale with sales increasing 7.7% versus the prior year. Notably, we experienced a significant improvement in the flow of orders including customers taking goods earlier within their shipping windows. International wholesale sales also returned to growth increasing 11% as the inventory congestion impacting certain partners particularly in Europe abated. We remain encouraged by our wholesale segment, both domestically and internationally and continue to expect year-over-year growth as we move through the balance of the year.

Now, turning to our regional sales. In the Americas, sales for the first quarter increased 7.8% year-over-year to $1.02 billion reflective of the improvements in our domestic wholesale business, which accounted for nearly half of the growth and the continued strength of our direct-to-consumer segment. In particular, our domestic direct-to-consumer business grew at 8%. Although this represents a step down from the robust growth of the prior year, on a two-year basis, this reflects a remarkable 35% increase in sales. In EMEA, sales increased 17% year-over-year to $627.7 million driven by double-digit growth in both segments with broad strength in nearly every country. Our investments to enhance our distribution infrastructure direct-to-consumer experience coupled with our strong wholesale partnerships are producing outstanding results for our EMEA business.

We also saw notable performance in our direct-to-consumer channels with impressive growth across genders and categories ranging from athletic to lifestyle and seasonal products. In Asia Pacific, sales increased 16% year-over-year to $604.5 million led by double-digit growth in most markets. In China sales grew 13% driven by double-digit growth in both our direct-to-consumer and wholesale segments. In India, sales were up slightly as we resolved logistical challenges with our new distribution center. While the regulatory environment in the market is uncertain in the near-term, we continue to be confident in the growth opportunities for our brand long-term. Gross margin was 52.5% up 360 basis points compared to the prior year. The improvement was driven by lower freight costs and a favorable product mix as consumers sought out our higher margin technology infused products.

Operating expenses increased 150 basis points as a percentage of sales year-over-year to 39.2%. Selling expenses increased 50 basis points as a percentage of sales versus last year to 7%, primarily due to increased marketing globally including investments focused on brand building and driving consumer awareness for our comfort technology products and newly launched categories. General and administrative expenses increased 100 basis points as a percentage of sales to 32.3% primarily due to higher labor and distribution costs to support growth in our direct-to-consumer segment and compensation related costs, partially offset by cost efficiencies realized in our U.S. and Europe distribution centers. Earnings from operations were $298.8 million a 34% increase compared to the prior year and our operating margin for the quarter was 13.3% compared to 11.2% last year.

Our effective tax rate for the first quarter was 19% compared to 18.5% in the prior year. Earnings per share were $1.33 per diluted share, a 30% increase on $155.1 million weighted average diluted shares outstanding. And now, turning to our balance sheet. We ended the quarter with $1.25 billion in cash, cash equivalents and investments, an increase of $322.2 million versus the prior year primarily from improved working capital management and operating efficiency. Inventory was $1.36 billion a decrease of 9.4% or $141.6 million compared to the prior year. Notably, we lowered inventory levels in the Americas by 18% and EMEA by 6.9% compared to the prior year. We believe our current inventory levels are healthy and well-positioned to support demand in 2024.

Accounts receivable at quarter-end were $1.16 billion an increase of $105.7 million compared to the prior year reflecting higher wholesale sales. Capital expenditures for the quarter were $57.1 million of which $24.3 million related to investments in new store openings and direct-to-consumer technologies, $15.6 million related to the expansion of our distribution infrastructure and $7.4 million related to the construction of our new corporate offices. Our capital investments are focused on supporting our strategic priorities, which include growing our direct-to-consumer segment and expanding our brand presence globally. During the first quarter, we repurchased nearly 1 million shares of our Class A common stock at a cost of $60 million. We continue to deploy our capital consistent with our stated philosophy while maintaining a durable balance sheet and ample liquidity.

Now, turning to guidance. For the full-year 2024, we expect sales in the range of $8.725 billion to $8.875 billion and net earnings per share in the range of $3.95 to $4.10 representing annual growth of 10% and 15% respectively at the midpoint. For the second quarter, we expect sales in the range of $2.175 billion to $2.225 billion and net earnings per share in the range of $0.85 to $0.90. Earnings per share will be down slightly in the quarter due primarily to the timing of demand creation spending, which is typically highest during the second quarter as we amplify consumer awareness for our product portfolio and position our brand for a successful summer and back-to-school periods. We believe this investment is critical to driving growth on a full-year basis and one of the reasons why we are fully incorporating this quarter’s outperformance into our full-year guidance.

Our effective tax rate for the year is expected to be between 19% and 20% and minority interest is expected to grow in-line with total sales. Capital expenditures are anticipated to be between $325 million and $375 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, including constructing our second distribution center in China, a 2 million square foot facility, which will likely elevate our capital expenditures this year and next. We remain confident in our objective of achieving $10 billion in sales by 2026 and are well-positioned to drive long-term earnings growth. We thank you all for your time today and look forward to updating you on our second financial results, which we expect to release on Thursday, July 25.

With that, I will now turn the call over to, David for closing remarks.

David Weinberg: Thank you, John. We started the year on a high note by setting new quarterly sales and adjusted diluted earnings per share records with strong gross and operating margins. We delivered results above expectations and further expanded globally with a growing presence in the technical performance space and our innovative comfort footwear continuing to be a must have for shoppers around the world. Skechers is delivering on its fundamental design tenets of style, comfort, innovation and quality at a reasonable price, which is resonating with shoppers from all walks of life. We believe comfort is a top priority and that casual and athletic are in high demand, while e-commerce continues to exhibit strength, people are also looking to engage and shop in our physical stores.

We are committed to delivering high-performance comfort technical footwear while broadening our offering of Skechers Hands Free Slip-ins, developing new looks in our sport, street and casual divisions, enhancing the Skechers shopping experience at all touch points and operating in an increasingly efficient manner. Our extensive product offering, best-in-class partnerships with our distribution network and strong global demand give us confidence that we will have another record breaking year as we continue to evolve and innovate and move toward our goal of $10 billion in annual sales by 2026. We again want to thank our entire supply chain and the Skechers’ team for delivering another successful quarter. I’d like to take a moment to thank all involved for their continued efforts assisting in delivering these results as we mark our 100th call.

Now, I would like to turn the call over to the operator for questions.

John Vandemore: Actually, before turning to the operator, I want to take a moment to commemorate this, our 100th earnings call as a public company. Skechers began trading on June 9, 1999. Many of the employees present that day continue to be deeply involved in the company, including our management team. However, only one person has been on each and every one of our earnings calls since going public. As we celebrate today’s milestone of our 100th earnings call, we want to take a moment to acknowledge and honor the remarkable commitment of David Weinberg, our Chief Operating Officer. For over 30 years, he has been integral to Skechers’ success and his dedication has been unwavering. So, on behalf of Skechers’ Board of Directors, Senior Management team and employees worldwide, I would like to sincerely thank Mr. David Weinberg.

I also want to extend heartfelt gratitude to the many other key contributors to the earnings process, including Jennifer Clay, our Vice President of Corporate Communications as well as our dedicated finance, accounting, investor relations and legal departments, all of whom have contributed to our journey of growth and success as a public company. With that said, I will now turn the call over to the operator.

See also The World’s 30 Least Powerful Passports in 2024 and 20 Cheapest Countries to Study Abroad.

Q&A Session

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Jay Sole with UBS. Please proceed with your question.

Jay Sole: Great. Thank you so much. My question is just there’s so many positives in Q1, really strong guidance raised for the full-year. If you could boil down really what was above your expectations and what really drove the strong results in Q1 to one or two things, what would you say?

David Weinberg: Product, don’t we always?

John Vandemore: Yes, I think it’s the success of the product. It’s manifest in a stronger domestic wholesale rebound than we had originally anticipated for the quarter, continued strength on the domestic and international direct-to-consumer front. In a lot of ways, the quarter came out how we hoped it would when we started the year. We just didn’t have all the data yet that would suggest we’d get fully there. And, I think what you’re seeing in the results, which are, we would argue some of the broadest, strongest results we’ve seen in a while, it’s a reflection of the success of the product across the Board.

Jay Sole: Okay. And maybe, John, if I can follow-up on that. Just there’s a lot of talk in the industry about a lot of brands getting more focused on the wholesale channel and potentially what the impact of that is on Skechers. Can you just give us a sense of what you see in your order book as you look out through Q2 and to the extent you have visibility through the rest of the year and how you see the wholesale business developing obviously after a very strong quarter?

John Vandemore: Well, if you remember, as we began the year, we expressed optimism in what we were seeing in our early bookings. You see in the domestic wholesale rebound in particular and the returns in Europe, that came through. I think it’s only gotten stronger since then. So, I would say, again, kind of echoing David’s original comment on the back of the product that we’re delivering, the innovation that we’re bringing to the market as well as entry into some newer categories for us, we continue to see really healthy signs on the wholesale front. We expect that to then carry throughout the year. And so that, I think, again speaks to the broad strength in the brand right now.

Jay Sole: Okay. Thank you so much.

John Vandemore: Thanks, Jay.

Operator: Thank you. Our next question comes from the line of Laurent Vasilescu with BNP Paribas. Please proceed with your question.

Laurent Vasilescu: Good afternoon. Thank you very much for taking my question. And congrats on the beat, the raise, and David for your 100th call, and to many more calls together. John, I wanted to ask, last quarter, I think you kind of called out that wholesale should grow high-single-digits for the year. Should we assume that grows low-double-digits now? And, if that’s the case, can you maybe parse that how do we think about domestic versus international wholesale for the year?

John Vandemore: Right now, we’re anticipating that the wholesale segment will grow kind of mid-to-high single digits. Again, we’re seeing really encouraging signs in our wholesale activity, our order book as well as just the sell-through that we’re seeing. We’re seeing also some really good success with partners who have come to fully embrace our comfort technology product suite. And so, I would suggest to you that we’re likely to see something between mid-to-high single digits. I do think the power for that is going to come from the international side of the business, but we’re incredibly pleased with what we saw in domestic wholesale. We said at the beginning of the year, we are confident we would see some rebound in the first half of the year.

We’ve seen it in the first quarter at about 8%. I expect that we will see some in the second quarter as well. And, then beyond the current booking window, we’re starting to receive orders and they all continue to suggest that the things will continue to grow, which is a great position for the brand to be in.

Laurent Vasilescu: Fantastic. Good to hear. John, your 10-K calls out that you are going to embark on a multiyear ERP implementation. For the audience, can you maybe talk about the OpEx and CapEx investments embedded in your guide for this year’s ERP? I know it’s the first year. And then longer term, once you complete this ERP, where do you think the opportunity is for the operating margin for the company?

John Vandemore: Well, taking your last bit of the question first, nothing has diminished our enthusiasm for our opportunity to get first into the double-digits, those double-digits that we have spoken about. Obviously, a 13% operating margin this quarter was exceptional. We are incredibly pleased with that, still working for this year to get into the double-digits. I would say, the implementation for the ERP as well as a lot of other things we’re doing in the company speak to our intent to continue to grow this brand to that $10 billion and beyond. It’s one of many investments we are making regularly to improve the opportunity that extends from everything in the stores, the distribution functionality. So, I would consider it all part of a suite of investments we’re making across the globe to continue to drive this business because we believe, again, as we’ve said before, $10 billion is a waypoint, not the ending point.

We will continue to grow this brand beyond that. I would say from a capital, from an OpEx perspective, it’s all embedded in what we’ve given you and what we will give you going forward so that we don’t have to talk about these irregular items as adjustments. We’d rather just embed them into the guidance and they’re fully encapsulated in what we’ve given you.

Laurent Vasilescu: That’s great. And, then just as a final question, you talked about it’s about product. In today’s press release, you talked about signing up three MLB players. You’ve entered basketball. You’ve entered global football. Should we assume that you’re going to enter the baseball category? And I don’t know if you can comment anything about indeed wearing Skechers shoes as of late? That would be great. Thank you very much.

David Weinberg: Yes, we’re going to continue. Obviously, it’s a great starting point for us and it’s part of what we believe will take us out further in the next couple of years for both the brand and the additional category. We think it’s great that Joel is wearing his shoes. He’s trying them out. He’s testing them out. We’ve had a great relationship with him. We have nothing to announce today, but we will, I believe shortly as he works through this, but that’s coming. He is obviously more involved right now in the playoffs. And sure, he’s worrying about tonight’s game more than he’s worried about any announcements or anything like that. But right now, he seems very comfortable in the shoes. It’s great that he’s wearing them, but we’ve got great results from Julius Randle, who we’re sorry he is missing because it would have been great in the playoffs.

He was playing great, Terence is playing great in his shoes. There’s other people we’re talking to. Our football business continues to grow. We’ve actually signed a cricket player as we move forward in sponsoring the Mumbai Indians as we go forward as a team. So, we’re moving into a lot of sports, a lot of categories, baseball as you mentioned. We think it’s all positive for the brand, for people’s understanding of the quality and intensity we develop shoes with and how comfortable they are even though they are made very, very well and compete at the highest level. So, we think that’s all positive for the brand. But right now, that’s just building for the future. The success today comes from what exists today, what we continue to bring forward, our styling.

We continue to invest in the product more so than I believe anybody else in our industry. It shows. It’s part of the answers you’ll get about wholesale and direct-to-consumer. It’s all about product, brand identity and all those things are fitting together and feels very, very good right now.

Laurent Vasilescu: That’s great to hear. Thank you so much.

Operator: Thank you. Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Jim Duffy: Thank you. Great job to the Skechers team. Very clear evidence of share gain in an otherwise difficult market. And, David, that that’s a phenomenal run. 100 earnings calls. That’s a lot of time dealing with the sell side. My sympathies are with you for that. Let me just start on China. I want to ask a question about distribution center capacity there. It only began to ramp the prior China DC in 2021. I’m guessing growth in China since then it has been below what you might have forecast. I’m curious where this, additional China DC takes your capacity and how you’ve thought about that?

David Weinberg: Well, originally, the first distribution center was not to take care of all the volumes. So, we knew we were underutilized when it was finished. We use a lot of third parties, logistics people in China because it’s spread out and done. We are now taking a bigger piece of that distribution facility using for our own use. So we think when this new facility is done, we will have some excess capacity, but we’ll use it throughout the big holidays because it was never meant to do a complete job on Singles Day, which is an outsize. So we’ll do bigger percentages and gain more efficiencies as we move through and grow into the second building. And I think it should set us up very, very well to be significantly more efficient with our online and direct to consumer businesses in China.

Jim Duffy: Great, thanks. And John, can you speak to the P&L impact from that investment? Should we expect a delevering contribution as you begin investments there ahead of scaling the capacity?

John Vandemore: Well, that won’t really hit until, at the earliest 2025, potentially 2026. We’re just starting, so the current spend is largely capital in nature. I would echo David’s comment though. What we’ve seen in China from the first distribution center pretty similar to what we see across the globe in that. Once the capacity is installed, we get more and more efficient as we utilize the capacity, as we learn to utilize it better as we adapt to the market. One of the benefits of a little bit of the slowdown post COVID in China was it actually allowed us to absorb more of that third party serviced demand into our own DC. So we actually saw a little bit of an acceleration in the efficiency gain in China than would otherwise have been the case because we had the ability to absorb more of that capacity internally.

But I would say it’s largely going to be a 25%, 26% event before we see any of those start-up costs come into play. But even when we had that with the existing distribution center, it wasn’t really extraordinary. If you recall, we didn’t talk about it a lot because it didn’t really factor sizably into our results. And that’s our current expectation. Although as we get closer, we’ll refine that and provide perspective as needed.

Jim Duffy: Very good. Then just a quick modeling detail question. You spoke to elevated demand creation in the Q2. Should that be a giveback in this back half of the year? Is that simply timing of demand creation relative to the prior year?

John Vandemore: It’s a little bit of both, to be honest. As we mentioned, I think, about the midpoint of last year, we feel it’s incredibly important for our message of innovation, particularly around our comfort technologies to be out in the marketplace. And one of those we’re leading with and as a result, supporting with a lot of marketing is the Skechers hands free slip in technology, of which we’re seeing a lot of copycat work today. So we want to make sure we get out ahead of that and firmly brand that technology as Skechers. So I would argue a little bit of it is timing as Q2 is always our most intense period. A little bit of it is incremental investment to make sure within the consumer’s perception of that technology, it’s solidly understood that it’s a Skechers comfort technology and not one that can be easily replicated elsewhere.

Jim Duffy: Very good. Thank you, John. Thank you, David.

John Vandemore: Thanks, Jim.

Operator: Thank you. Our next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Krista Zuber: Good afternoon. This is Krista Zuber on for John and congrats David. Just two questions for us. Thanks. First on, really just ASPs and kind of the expectation for the balance of this year. You know, you’re lapping some, easier wholesale ASPs in Q2 and Q3, but a little bit more challenging on the DTC side of things. So just kind of how you’re expecting that to play out for the balance of the year? And then I just have one follow-up on the slip ins. Thank you.

John Vandemore: Yes. I would say this year is going to be more about volume than price. We will see and expect some elevation in ASPs, although not nearly what we’ve seen over the last couple of years. That’s largely going to stem from product mix. We continue to see consumers choosing within our portfolio the higher value comfort technology latent products, and that’s actually driving ASPs apart from anything we’re doing from a pricing perspective. So I would expect that much more of this year’s drive in sales is going to come from units. We will again, we’ll see a little bit of ASP in there, but not a ton.

Krista Zuber: Okay. Great. And then just on the slip ins technology, you’ve mentioned in the past that there’s an opportunity here to think about category expansion with this technology. And just kind of any sort of framing that you can give around them sort of the margin profile from this innovation that it that kind of affords you from the comfort technology, be it slip ins, Archfit, etcetera, and how that’s kind of playing out within the total product line at this point? Thank you.

John Vandemore: Yes. I think you’re largely seeing that now. I mean, it’s been coincident with some reductions in landed costs stemming from freight rates coming back to normal, but also evidenced in the gross margin performance we’ve delivered over the last couple of years is that higher value, again, technology laden product. I expect you’ll continue to see a little bit of gravitation up on the gross margin coming from product and business mix as DTC grows faster than wholesale, you see some benefit from that. So I think that’s largely kind of in both what you’ve seen recently and what you’ll continue to see. We will begin to lap that, so there won’t be as pronounced a lift coming just from product. I would also say, I think the design team continues to certainly exceed everybody’s expectations with how widely and deeply they’ve been able to install that technology and products you would never even dream of benefiting from some of that technology.