Laurent Vasilescu: And maybe if I can squeeze 1 India question for you, David, talked about Mumbai, D.C. up and running. Can you just maybe give us some guardrails or just how big India is? Is it like a $200 million business? And do you think we can get to a — can it become a $1 billion opportunity within that $10 billion framework? Or is it beyond that?
David Weinberg: I think it can get beyond that. We’re only scratching the surface. The brand is very well recognized and being accepted there. And it’s only a matter of getting everything up and running, and we’re looking to do production also in India. India is a very protective marketplace. So we have to move more things in there than we’ve had before. When we went to China, it was obviously a big marketplace. We already had production in China to a significant degree. We’re starting to move some production into China. That’s both apparel and footwear. We’re building our infrastructure. Without giving away too much information, your numbers are pretty close for where it is now. They’re a little higher and $1 billion is certainly depending on what your time frame is within our sights.
So we do well there both from a wholesale basis. We have third-party partners there that are terrific that we use and continue to grow, and we use a franchise model and our own wholesale. And now we’re putting in our own e-commerce, while they’ve had it, we’re putting our own platforms in. So we still have a lot of work to do, but there’s a lot of open road there.
Operator: And our next question is from John Kernan with Cowen and Company. Please proceed with your question.
John Kernan: John, can you give us detail just on the sequencing of gross margin this year between expansion in the back half, potential contraction in the front half? Is there any magnitude you can give us in terms of how cost of goods sold and gross profit should flow throughout the year?
John Vandemore: Well, I mean, in part is dependent upon how quickly we deplete the inventory we have. What I would say is if you kind of take the halves of the year, you would definitely expect the first half to be materially lower from a gross margin perspective than the back half of the year. There’s always mix in there and business mix as well as concentration within direct-to-consumer that kind of gets in the way of getting a pure look. But what I would tell you is we definitely anticipate that the back half of the year is when we’ll start to enjoy the benefits provided our plan holds. So I think you can expect from — if I take it back to kind of 2021 before we had as much of the impact, you should see some marked improvements from those certainly in the back half of the year to start to accentuate the value of what we lost in freight and other logistics-related costs over the course of 2022.
And I guess just to harp on that just for a second. I mean this really — this year will really become, again, a tale of 2 halfs. The first half is where we’re seeing the challenges. The second half is where we see a ton of opportunity. I would tell you, our guide attempts to sufficiently incorporate the challenges we foresee in the first half and probably leaves open opportunity on the back half because we have the visibility into bookings and activity yet. We don’t know how COVID is going to unfold, but that’s how we try to position the year so that once we get through the first couple of quarters, which we’ve already started on, we’ll get a much better insight into how the year is going to unfold, but we do see abundant opportunity there.
John Kernan: Maybe just a quick follow-up on that. The gross margin in the first half of the year, could it be down year-over-year? And then most of the recovery — the increase in gross margin starts to fall in the back half of the year?
John Vandemore: No, I wouldn’t expect it down versus ’22. ’22 was sorry for the color, but it’s just a terrible gross margin here. I mean no fall of ours. I think everybody saw the impact of the highest freight rates we’ve ever seen by a factor of 5, logistics costs, backups, and everything. So we certainly have no exception that year-on-year, we would see declines in any period, but it gets better as the year goes on.
John Kernan: My follow-up is just on Q1 top line guidance. Could you talk to channel and geography in terms of any expectations you can give us, obviously, domestic wholesale has an incredibly difficult comparison. But wondering if there’s any other detail you can give us to get to that sales guidance range?
John Vandemore: Yes, again, and not the heart of my theme, but obviously, you can see where our speaking notes went to. It’s really China and domestic wholesale in the first half, providing the headwind. We think the balance of the markets we’re in will continue to perform very, very well. Direct-to-consumer has definitely started off strong. I think as David noted in his prepared remarks, so we’re very encouraged by what we see there. And you do rightly point out, if we recollect back to 2022, Q1 was with a year — with a quarter where a lot of catch-up shipped in the period from the inventory stagnation of the port here. So it’s really domestic wholesale in China in the first quarter, offset by good, solid continuing performance elsewhere. There’s certainly opportunity to outperform those 2 challenging markets, but it’s going to be something that we’re going to have to see as the period unfolds because of the known challenges there.
Operator: And our next question is from Gaby Carbone with Deutsche Bank. Please proceed with your question.
Gaby Carbone: So kind of just bigger picture. I wonder if you can just talk about how you view Skechers’ ability to get back to 2019 operating margin over time? Kind of where do you still see the biggest opportunities within the business and maybe the biggest risk just considering the macro environment and the uncertainty there?
John Vandemore: Yes. I don’t mean for this to sound tried Gaby, but it’s really 2 things. Our margins are going to — gross margins are going to build back because of the absence of the extraordinary logistics costs, and we’re going to get our distribution network back to what we would consider to be normalized efficiency. If those 2 things happen, that’s — those are going to be the biggest contributors to success. I think the potential risks to that are continuing COVID challenges across the globe. Obviously, we’ve spoken about China already, but what we’ve seen the nature of this condition is that it kind of travels across the globe. So if there’s an impact out there to be had, that could be a headwind. And then obviously, we don’t see any signs in what we monitor and certainly not in our own brand performance that we monitor of a forthcoming macroeconomic recession, but that’s obviously a possibility.
And I think if that occurs, we still have a lot of tools in our tool belt to use to protect margins, but that would certainly be kind of the 2 biggest risks I see.
Gaby Carbone: And just a quick follow-up. Just wondering if you can provide a bit more color around the composition of your inventory. It does seem like levels are much improved on a year-over-year basis versus the end of 3Q, but are there any areas in channels and regions where you still feel a bit more over inventory than you would like to be?
John Vandemore: Yes. I mean I would first point out as we noted, the U.S. quarter-over-quarter was down, and that’s where we previously had some of the bigger challenges. We did see a little bit of a shift of the issues in the U.S. kind of like a contingent kind of made their way overseas into Europe a little bit. I think we’re getting beyond that much faster than we did in the U.S. So I think that’s incredibly important. I would note in contrast to last year, we’re seeing significantly less inventory in transit, which is good because that gives us the ability to deal with the inventory. Obviously, we’re still sitting on some inventory. We’d like to ship on to customers for which they have orders that the integrity of which we feel really good about.
But until they clear their own congestion in their own distribution networks, it’s tough for us to have the opportunity to do that. But again, I think we’re seeing encouraging signs. We think a flattish inventory quarter-over-quarter is a very good sign. China reopening is a very good sign. We just need to work through where we’re at. And that we believe, again, is probably a first half of the year activity.
Operator: And our next question is from Jim Duffy with Stifel. Please proceed with your question.
Jim Duffy: I wanted to start building on Gaby’s question on the inventory. Can you speak to how you see the glide path for inventory normalization? And you mentioned perhaps in some recessionary signals. With respect to the inventory, how are you planning receipts on a go-forward basis?
