John Vandemore: Yes. EMEA was great. Probably the most significant surprise for us was the continued strength on the direct-to-consumer side in Europe. So, the side of our business that’s closest to the consumer in that market, which certainly has had its share of challenges over the course of last two years, performed exceptionally well for us, strong demand for the products, strong demand for our comfort technologies. We recognize it’s a dynamic environment. We’re watching the consumer just as carefully as everybody else. But, what we saw in the quarter was highly encouraging relative to our business in that market, and we’re certainly expecting continued growth there. I think if we’re going to see kind of an outsized growth element to the remainder of the year, it’s probably going to come from the international DTC side of things, and we expect Europe to be a contributor to that.
Jesalyn Wong: All right. Thank you.
Operator: Thank you. Our next question comes from the line of Chris Nardone with Bank of America. Please proceed with your question.
Chris Nardone: Thanks guys. Good afternoon. I was wondering if you can provide an update on the trends you’re seeing in your India business given some of the recent regulation uncertainty in the market. If you can comment maybe how large your business is today and what your manufacturing capacity looks like relative to the demand you’re seeing?
John Vandemore: Yes. We don’t size markets but I would say in India, certainly one of our bigger international markets is kind of a standalone country. And more importantly, we think one of the bigger opportunities long-term. The regulatory environment, it is what it is in the marketplace. We did see a short-term relaxation of some of the recently enacted regulatory limitations on importation. It’s not long-term though, so it continues to be an issue we deal with. We have objectives to continue to manufacture more and more product in India. The issue in the short-term is simply the capacity of that market to bear it. And, that’s not a Skechers issue in all honesty. That’s an industry-wide issue, and that’s something we continue to work on with our manufacturing partners.
So, it’s something we’ll continue to watch. I was pleased that India came up a little bit in the quarter, because it’s also had some influences from macro concerns and now they’re involved with the world’s largest election, which takes an awful long time to get done. And so, we’re cautiously optimistic about what we’ll see over the balance of the year, but the regulatory scheme is ultimately going to need to be resolved for the benefit of Skechers and the broader community of footwear and apparel providers before we have, I think, full clarity in kind of the near-term runway. But again, long-term, a great market we continue to be enthusiastic about and we’ll be visiting in a month.
Chris Nardone: Thanks, John. That’s very helpful. And, then just quick follow-up on your international business more broadly. Can you help frame what inning we’re in, in terms of rolling out your slip-in technology across markets?
John Vandemore: Are we talking baseball or cricket or?
Chris Nardone: We’re talking —
John Vandemore: I’m joking. Look, I think it’s early, but I would argue it may even be early for the United States. We don’t, this is a fantastic technology that’s resonating with consumers, has a lot of runway. We’re incorporating it into more and more products, I think in a unique way that will appeal to consumers. And, so I would say whichever measure you choose to use, it’s early stages. I would also though mention, Chris, that it’s not just about Skechers hands free slip-ins. This isn’t in isolation. It’s the portfolio of technologies we’re bringing forward. It’s our Max cushioning, our Arch Fit. It’s our concentration on wide widths for individuals who have that need, our Hyperburst technology. I mean, there’s a lot to it and I would say we’re continuing to press those advantages and develop more for both the domestic as well as the international markets.
Definitely more room to go on the international side just due to the timing of the rollouts, but it’s hard to call a specific percentage complete at this juncture because we’re continuing to surprise ourselves sometimes on how that technology can be deployed in different products and in different ways.
David Weinberg: And, it’s important to remember that it’s only a feature and more as importantly or more importantly is the whole brand identity. All the categories we compete in and all the product we bring forward that we continue to showcase and move into new categories with it’s, we’re going into technical athletics that may or may not have a piece that it will use some of the features and not others. But, all of our comfort features go into a myriad of product and it’s important to keep expanding the brand, expanding the categories, expanding our design capacities to be available for everyone and use all not a specific, but all of this technology is available to us and all the technologies we continue to invent for lack of a better word or bring to the marketplace to enhance our comfort in something that’s stylish and that everybody wants to wear.
Operator: Thank you. Our next question comes from the line of Alex Straton with Morgan Stanley. Please proceed with your question.
Alex Straton: Great. Thanks so much and congrats again on nice quarter. I wanted to zoom in on the first quarter gross margin. It looks like a lot of that expansion came from wholesale up over 500 basis points. So, can you just talk through why that part of the business is hitting highs and how to think about the right kind of gross margin level for it going forward?
John Vandemore: Yes. I think, Alex, we talked about the disparity between kind of this year and last year relative to the impact of a lot of our comfort technologies. It was just earlier, and so there weren’t as many, and that’s why we disproportionately benefited in the wholesale side of things, on the domestic and international DTC side of things. We’re able to put that product into play earlier, and obviously, it did quite well. The other way to think about it is the DTC, because it’s under our total control, is almost always the leading edge for us. And, so we’re able to impact that business much more quickly than our wholesale side of things, be it pricing, be it any other aspect of the business seating. So, we saw that benefit DTC in a more pronounced way last year, and we’re seeing kind of wholesale catch up, particularly this quarter.
Alex Straton: Great. And, then maybe just bigger picture on gross margin since they’ve stepped up so much from pre-COVID levels. Maybe where you think that kind of settles over time? Is this the new kind of right level or has it come down from here?
John Vandemore: Well, we’ll continue to look for opportunities to drive gross margin. I think on a year-over-year basis, clearly, there’ll be some uplift because we had more of the freight in play in the Q1 last year. So, that was naturally accrete. But also as we grow our direct-to-consumer business at an outsized pace relative to our wholesale, that allows for continued accretion. And, so I think over the near-term, we would expect it to continue to go up, albeit not at the leaps and bounds we’ve seen over the last couple of years at a more modest pace as it’s about the mix of business, mix of product rather than influences from freight or other major input costs unless something changes.
Alex Straton: Thanks so much. Good luck guys.
John Vandemore: Thanks, Alex.
Operator: Thank you. And our next question comes from the line of Sam Poser with Williams Trading. Please proceed with your question.
Sam Poser: Hey, guys. Thank you very much. David, we’ve known each other a long time. So, just let me just follow-up on the gross margin. I mean, how should we think I mean, can you give us like a neighborhood of how you’re thinking about gross margin for this year? And that can be up 360 bps, but I mean, what can you give us a range of what we’re looking for the year?
John Vandemore: Again, I’d say, if we’re going to continue to drive it north, this year, this quarter was higher definitely than we expect over the balance of the year. I think we’d love to see it up 100 basis points to 150 basis points, but there’s a lot of mix that can come into play there. So, it’s kind of the range of the neighborhood I’d start out with. But keep in mind, as we see the business unfold, as we see the business balance out over the rest of the year, that may change. I mean, one of the things I’m always cautious of, as you know, Sam, is we have tremendous success in our distributor business, which is a great operating margin business. It could have an effect of dragging down gross margins a bit.
But again, that’s an incredibly lucrative operating margin business. So, we’re not really intent on playing the gross margin game per se overall. We really focus on what kind of constructive margins are we getting out of the product and out of the accounts and then let the business kind of blend into the increased margin. But if I had to give a number, it would be that 100 to 150 basis point range at this point.
Sam Poser: Thank you. And then, you talked about the timing of the year, and this is a peculiar year because many of your big wholesale accounts had their 53rd week last year, which means that one of the biggest weeks of back to school actually falls into their second quarter where it fell into the third quarter last year, which makes them a little more like, we need goods earlier than later kind of situation to make sure that that they get set up properly for back to school. Is that included in your number? I know, you know, June 20 June 30th versus July 1st switches everything. But I mean, as far as I’m concerned, it looks a little less likely this year that like, it seems more likely that one good’s earlier than later for back to school?
John Vandemore: Yes. That’s just a really tough decision to call for someone. So, what we’ve given is our current expectation based on the way the shipping windows are set up in the order flow. Again, I would comment, we saw improvements this quarter from earlier deliveries, certainly feasible that we see that in the second quarter, but not certain. And until we start to see some action on actually adjusting shipping windows, we’re not going to incorporate that fully into the guidance. But Q2, Q3 is always a, I know you all care about it a lot. We really don’t care too much as long as the shipment goes out at one point or another and we get it in the hands of our customers who can get it to our consumers and it can sell through because that’s to David’s point earlier, that’s the ultimate arbiter of how much business we’ll be able to do, and we continue to see really strong sell-throughs.
Sam Poser: Thanks. And, then one last thing, the gross margin that you’ve been running, especially on the wholesale side, but in general, to me it looks like can you talk a little bit about how over the years I think you’ve improved in sort of measuring demand, your inventory is in good shape and it I mean, how much of that has played a part outside of mix and currency and various other things. How much is sort of this sort of internal processes, the evolution of the internal processes changed and where is that going?
John Vandemore: Yes. I think you’re seeing the results of a lot of work on margin, not just at the product level, although the product team has been integral to that as well. It’s about making sure your promotional strategy is properly applied, that your discount structures are properly arranged. And for us, because we’re operating our direct-to-consumer business alongside with many of the similar styles and products, that we’re maintaining price integrity in that channel. So, it’s not just one thing, it’s a lot of concerted effort to make sure that we’re getting the right merchandise margin for our product. But it’s also the innovation. The innovation is certainly something we’ve seen payoff at consumer level.
