Skechers USA Inc

NYSE:SKX

Earnings Call Analysis

Skechers Achieves Record Sales Growth Amid Global Challenges

Skechers reported a record $2.35 billion in sales for Q3 2024, up 16% year-over-year, with earnings per share rising 35% to $1.26. Strong wholesale performance, growing 21%, and a 9.6% increase in direct-to-consumer sales helped drive growth. International markets fueled momentum, especially EMEA with a 30% rise. Despite a 5.7% drop in China due to macroeconomic challenges, overall global diversification remained strong. Looking forward, Skechers projects sales for 2024 between $8.925 billion and $8.975 billion and earnings per share of $4.20 to $4.25, suggesting a 12% sales growth and 21% rise in earnings.

Record Growth in Sales and Earnings

Skechers achieved remarkable third quarter results, recording sales of $2.35 billion, a 16% increase year-over-year, equating to an additional $323 million. This growth was largely driven by significant increases in both wholesale (21%) and direct-to-consumer channels (9.6%). Earnings per diluted share surged by 35% to $1.26, illustrating the company's robust financial health and market acceptance of its innovative footwear products.

International Sales Outperform Domestic Growth

International sales constituted 61% of total sales, increasing by 16%. The Americas saw a growth of 14%, while Europe, the Middle East, and Africa (EMEA) led with an impressive growth of 30%. Conversely, the Asia-Pacific region faced challenges, particularly in China, where sales declined by 5.7% due to macroeconomic pressures, which Skechers continues to navigate with optimism for future recovery.

Strategic Focus on Product Innovation

Skechers attributes its growth trajectory to a strong commitment to product innovation and comfort technology. The company is expanding its performance footwear line to include new categories, gaining traction in sports like basketball and soccer. Marketing campaigns featuring high-profile athletes have significantly raised brand awareness and driven purchase intent, contributing to stable consumer sentiment across channels.

Store Expansion Strategy

The company ended the quarter with a total of 5,332 branded stores worldwide and opened 68 new company-owned stores, including locations in China, the United States, and Mexico. With plans to open an additional 55 to 60 stores in the fourth quarter, Skechers is actively enhancing its retail footprint to better serve its growing consumer base.

Positive Financial Metrics Amidst Inventory Challenges

Although Skechers reported a gross margin of 52.1%, down 80 basis points from the previous year, it is attributed to a lower average selling price stemming from increased promotional activity. Skechers ended the quarter with a healthy cash position of $1.6 billion and effectively managed inventory levels despite a 24% increase driven by in-transit stock, especially in EMEA. The company aims to rectify supply chain challenges as global conditions improve.

Guidance for Future Growth

Skechers has provided optimistic guidance for the full year 2024, expecting sales between $8.925 billion and $8.975 billion, alongside earnings per share of $4.20 to $4.25. This represents annual growth of approximately 12% in sales and 21% in earnings at the midpoint. The company expresses its commitment to achieving $10 billion in sales by 2026, reinforcing its long-term growth strategy.

Regional Market Dynamics and Recovery Outlook

The company is particularly wary of its performance in China, where economic challenges have impacted sales. Although there is a cautious approach towards the Chinese market, positive signs are emerging. The management remains optimistic about recovery in the region, especially with key shopping events such as Singles Day approaching, which could provide further insights into consumer sentiment.

Capital Investments and Shareholder Returns

In the third quarter, capital expenditures totaled $113.9 million, focused on store openings and technological enhancements in the direct-to-consumer segment. Skechers also repurchased approximately 1.4 million shares for $90 million, demonstrating a commitment to returning capital to shareholders while maintaining robust liquidity for operational flexibility.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to Skechers Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Skechers. Thank you. You may begin.

[Unknown Executive]

Good afternoon, everyone. Thank you for joining Skechers Third Quarter 2024 Earnings Conference Call. My name is [ Melissa Tankersley ], I'm a manager on our digital marketing team at Skechers, and have been with the company since 2021. My favorite style at Skechers is the Eden LX from our Court & Classics collection.

Joining us on today's call are Skechers' Chief Operating Officer, David Weinberg; and Chief Financial Officer, John Vandemore.

Before we begin, I would like to remind everyone of the company's in the harbor statement. Certain statements made on today's call contain forward-looking statements based on current expectations, including, without limitation, statements addressing the beliefs, plans, objectives, estimates and expectations of the company and its future results and certain events.

These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from such statements. 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. Please refer to the company's reports filed with the SEC, including its annual report on Form 10-K and quarterly reports on Form 10-Q for more information on these risks and uncertainties that may affect the company's business, financial conditions, cash flow results of operations.

With that, I would like to turn the call over to Skechers' Chief Operating Officer, David Weinberg.

[David Weinberg, executive]

Good afternoon, and thank you for joining us today on our third quarter 2024 conference call. The third quarter marked a new quarterly sales record as we achieved $2.35 billion in sales, an increase of 16% or $323 million. Earnings per diluted share were $1.26, a 35% increase. We saw significant growth in both our segments, 21% in wholesale, 9.6% in direct-to-consumer and balanced growth of 16% internationally and 15% domestically. These across-the-board increases and record sales are a testament to the widespread acceptance of our diverse product as customers and consumers increasingly look to Skechers as their source of innovative, comfortable footwear.

Our product line offers a unique value proposition for our partners and consumers, providing style, comfort, quality and innovation at a reasonable price. These attributes differentiate Skechers. Our consistent focus on new products and delivering our signature comfort technology across the portfolio from sandals and boots to performance in sports styles is key. Consumers now seek Skechers comfort features knowing these styles offer more value.

For the Skechers Performance division, we see a significant opportunity to build on our existing performance business, which includes technical running, golf and pickleball footwear with the addition of new categories that will attract a broader audience. We are in the early stages of team sports with a growing roster of Olympians and elite athletes competing in our basketball, soccer, court and cleated footwear globally. Regardless of the sport and skill level, elite or recreational, athletes can trust that with Skechers, they will experience and enjoy comfort that performs.

Raising awareness and creating purchase intent for our Lifestyle and Performance Technologies has been an integral part of our growth. We achieved this through both feature-focused marketing campaigns and by leveraging our strong team of ambassadors and athletes. Earlier this quarter, Snoop Dogg and Philadelphia 76ers basketball star Joel Embiid both achieved golden moments at the Paris Games wearing Skechers. Joel and Team USA earned a gold metal and basketball while Snoop championed at around the world in his Skechers by Snoop Dogg Go shoes.

Also, earlier this year, Harry Kane, the celebrated striker and Skechers athlete received the Golden Boot Award as the leading scorer in Europe. And just last month, he competed in his limited edition Gold Skechers football boots while earning a gold cap for his 100th match on England's national team.

For Lifestyle, we recently signed TV host Howie Mandel and launched the campaign featuring him across North America as well as former Dutch footballer, Ruud Gullit, whose slipping campaigns began airing last month in Europe. This month, we introduced our first ambassador for the Philippines, Pia Wurtzbach, who attracted crowds of fans at a Manila mall event.

Overall, we experienced healthy consumer sentiment and shopping behavior for Skechers across channels as more of our comfort technology products become widely available. As we continue to drive purchase intent, infuse more innovation in more of our products and ensure that they're available globally, we remain focused on building efficiencies within our business to scale for profitable growth.

Looking at our third quarter results in more detail. International sales increased 16% and represented 61% of our total sales. By region, we saw growth in EMEA of 30% due to increases across every market, and the Americas of 14% led by the United States and Canada. Additionally, APAC increased 7.4%, led by Japan, Korea and India.

We achieved impressive international sales growth while navigating challenges in certain markets, especially in China, where we continue to see pressure on consumer discretionary spend. With our established long-standing business in China and a strong team on the ground, we are confident in our ability to withstand these short-term impacts.

In India, we saw an impressive rebound in the quarter with 24% growth. We continue to work closely with both our India team and regulators to further advance our local sourcing strategy. We are seeing positive trends and remain optimistic about the progress in this important market. We see tremendous opportunity not only in our lifestyle business, but also in performance. We have long established run clubs across 10 cities and are branching into new sports. This year, we became the kid sponsors with the All India Pickleball Association and signed multiple players. For the introduction of Cricket footwear, we are also the kid sponsors for the Mumbai Indians signing multiple players from the Indian national team.

In September, we announced the deal with NBA India to sponsor the Youth basketball team. The demand for our product is strong in India as demonstrated in the third quarter, and we will continue to invest in this important market.

For wholesale, sales grew 21% due to increases of 26% domestically and 18% internationally. Our domestic wholesale strength reflects a healthier market that is embracing our comfort technologies. This resulted in double-digit increases across our men's, women's and kids footwear across our many product lines and significant improvements in volume. Within international wholesale, we saw a meaningful growth, especially in EMEA, due to continued demand for our innovative products and improved timing of shipments.

Given the breadth of product offering available, direct-to-consumer continues to be a key indicator of consumer sentiment. Sales increased 9.6%, primarily due to an increase of 14% internationally with improvements in both our retail and e-commerce channel. Domestic direct to consumer sales improved 3.7% on top of last year's 14% increase primarily due to strong e-commerce growth as more consumers gravitated to shopping online.

We ended the quarter with 5,332 Skechers branded stores worldwide, of which 1,743 are company-owned locations, including 592 in the United States. We opened 68 company-owned stores in the quarter, including 20 in China, 17 in the United States, 8 in Mexico, 5 in Korea and 3 in Colombia. We closed 27 stores in the quarter. Also in the period, 121 third-party stores opened, including 56 in China, 14 in Indonesia, 10 in India, 7 in South Korea and 4 each in the Netherlands and Vietnam. This brings our third-party store count at quarter end to 3,589.

In the fourth quarter to date, we've opened 21 company-owned stores, including 7 big box stores in the United States and 4 locations in China. We expect to open a total of 55 to 60 company-owned stores worldwide in the fourth quarter.

From an investment perspective, our priorities include continuing to strengthen the product offering while amplifying demand creation and enhancing our worldwide operational capabilities, building our Skechers retail footprint and ensuring Skechers product is available where and when our diverse consumer base wants to shop.

And now I'd like to turn the call over to John for more details on our financial results.

[John Vandemore, executive]

Thank you, David, and good afternoon, everyone. Skechers delivered record third quarter financial performance with sales of $2.35 billion, an increase of 16%; and earnings per share of $1.26, up 35%, driven by strong international growth across segments, continued momentum in domestic wholesale and durable gross margins. Our diverse portfolio of innovative comfort technology products, combined with our distinctive value proposition continues to attract and engage consumers, fortifying Skechers as a preferred brand within the industry. These results are particularly impressive considering the challenges we faced during the quarter and demonstrates the resilience of the Skechers brand.

Let me address the market in China, where macroeconomic pressures and its impact on the consumer are well documented. Sales declined 5.7% year-over-year, which was below our initial expectations for the quarter. Our talented local team has responded by adjusting our near-term plans to navigate the uncertain situation and we have modest expectations for the balance of the year, including Singles Day.

Over the years, we have built an incredible brand in China and remain confident and optimistic about the long-term opportunities for Skechers in this market. In contrast to this challenge, we saw marked improvement in several of our international businesses, particularly in Europe, where our mitigation strategies to address supply chain delays bore fruit. We also saw a rebound in India where the continued collaboration between our local team, suppliers and regulators led to a meaningful turnaround from last quarter's results.

Overall, we believe our double-digit sales growth in the quarter is a testament to the strength of our brand, the effectiveness of our global diversification and the nimble execution by our talented teams.

Turning to direct-to-consumer. Sales grew 9.6% year-over-year to 931.7 million. International was a key driver, growing 14% with increases in both retail and e-commerce channels across most markets. Domestic sales increased by 3.7% on top of 14% growth last year. We maintained growth in e-commerce while observing a gradual improvement in store traffic, which yielded stable retail sales. Based on early results, we expect similar direct-to-consumer trends in the fourth quarter, recognizing that the key holiday period remains ahead.

In wholesale, sales increased 21% year-over-year to $1.42 billion. Domestic wholesale sales grew 26% or $107 million versus the prior year, driven by solid consumer demand and the increased capacity of our wholesale customers to embrace our Comfort technology products. International wholesale sales increased 18% or $134.4 million, reflecting the robust consumer appetite for our brand across the globe, leading to double-digit growth in every region when excluding results in China.

Based upon booking trends and early results, we anticipate wholesale will continue to deliver strong results through the fourth quarter.

Now turning to our regional sales. In the Americas, sales for the third quarter increased 14% year-over-year to $1.16 billion driven by continued momentum in domestic wholesale. The Americas direct-to-consumer business also grew impressively across nearly all markets, demonstrating continued consumer demand for our product.

In EMEA, sales increased 30% year-over-year to $625.6 million, driven by double-digit growth in both our wholesale and direct-to-consumer businesses. All channels exhibited outstanding growth in nearly every market, driven by strong consumer demand and wholesale benefiting from improved product availability.

In Asia Pacific, sales increased 7.4% versus the prior year to $566 million, with results impacted by the aforementioned challenges in China. Excluding China, sales grew an impressive 21%, reflecting a remarkable turnaround in India as well as broad strength across channels in most markets. Gross margin was 52.1%, down 80 basis points compared to the prior year, primarily due to a lower average selling price from slightly higher levels of promotional activity in certain markets. Operating expenses decreased 30 basis points as a percentage of sales year-over-year to 42.2%.

Selling expenses as a percentage of sales increased 20 basis points versus last year to 9%. As mentioned in prior quarters, the higher spend was largely focused on brand-building investments and increasing awareness for our latest comfort technologies and new categories.

General and administrative expenses decreased 40 basis points as a percentage of sales to 33.2% with the leverage primarily driven by efficiencies realized in our distribution network. Earnings from operations were $233.4 million, an increase of 9.5% compared to the prior year, and operating margin for the quarter was 9.9% compared to 10.5% last year. Other income was $11.9 million, an increase of $18.9 million compared to the prior year, driven by favorable foreign currency exchange rates and increased interest income.

Our effective tax rate for the third quarter was 14.7% compared to 19.5% in the prior year, reflecting the release of certain allowances and other provision adjustments. Earnings per share were $1.26 per diluted share, a 35% increase compared to the prior year on 153.7 million weighted average diluted shares outstanding.

And now turning to our balance sheet. Inventory was $1.71 billion, an increase of 24% or $324.8 million compared to the prior year. The increase resulted from higher inventory levels in China and elevated in-transit inventory, particularly in EMEA, which we believe will be remedied as market conditions stabilize and supply chain constraints continue to improve.

Accounts receivable at quarter end were $1.19 billion, an increase of $257.7 million compared to the prior year, reflecting higher wholesale sales. We ended the quarter with $1.6 billion in cash, cash equivalents and investments and maintained liquidity of $2.42 billion when including our revolving credit facility.

Capital expenditures for the quarter were $113.9 million, of which $56.3 million related to new store openings and enhancing our direct-to-consumer technologies, $22.6 million for the expansion of our corporate offices and $17.1 million for investments in our distribution infrastructure. Our capital investments are focused on supporting our strategic priorities, which include maintaining our best-in-class distribution capabilities, growing our direct-to-consumer segment and expanding our brand presence globally.

During the quarter, we repurchased approximately 1.4 million shares of our Class A common stock at a cost of $90 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 $8.925 billion to $8.975 billion, and earnings per diluted share in the range of $4.20 to $4.25, representing annual growth of 12% and 21%, respectively, at the midpoint. This implies fourth quarter sales in the range of $2.165 billion to $2.215 billion, and earnings per diluted share in the range of $0.70 to $0.75.

Our effective tax rate for the year is expected to be between 18% and 19%, and minority interest is expected to grow in line with total sales. Capital expenditures are anticipated to be between $375 million and $400 million for the year.

We remain committed to achieving $10 billion in sales by 2026, and delivering sustainable, long-term and profitable growth.

We thank you all for your time today and look forward to updating you on our fourth quarter results, which we expect to release on Thursday, February 6, 2025.

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

[David Weinberg, executive]

Thank you, John. As the comfort technology company with innovations that include Skechers hands-free slip-ins, Skechers Arch Fit, Skechers Air-cooled memory form, Hyper Burst, fit knit and many more technologies, we are focused on designing products that consumers both want and need at a reasonable price, and delivering it through their preferred distribution channels. Our consumer-centric philosophy and innovative and comfort-driven mindset across our diverse product portfolio is what differentiates us, and is what drives us to excel and results in record-breaking sales.

With fresh products to introduce, campaigns to support and opportunities to explore around the world, we will continue to invest in the brand, our infrastructure and our people. We remain committed to design best-in-class and best-in-value products for consumers and to profitably grow the company as we bring comfort to people from all walks of life. As always, we are grateful for the contributions of the entire Skechers organization and our valuable partners as we deliver profitable growth this year and into the future.

Now I'd like to turn the call over to the operator for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Jay Sole with UBS.

[Jay Sole, analyst]

David, John, my question is about domestic wholesale growth. 26% is a really big number. You mentioned that some of the drivers were increased capacity of your customers to, I think, add SKUs and just adoption of new technologies. Can you just elaborate a little bit more on where the growth is coming from, what categories, like how you're able to achieve such high growth in domestic wholesale?

[John Vandemore, executive]

Jay, I mean, we need to keep in mind where we were last year with the domestic wholesale marketplace. And we spoke quite a bit about the inability of certain customers, either because they had too much inventory. They didn't have an open to buy to fully embrace our comfort technology products. And what you're seeing is after a year of maturation market, and quite frankly, the success of those products, those customers are coming back and they're able to fully embrace the line. It is our comfort technology products that's succeeding in the market both in our own stores, our own retail, online as well as with our wholesale partners. So the primary driver is an ability that was not there last year to really fully embrace the comfort technology message and product that Skechers is putting forward. And obviously, that's supported by the marketing that we're doing to really drive consumer awareness of the technology, of the products that incorporate the technology.

[Jay Sole, analyst]

Got it. And maybe if we can also talk about India. It sounds like that market has seen some real progress in the last 90 days. Can you just tell us a little bit more about what you're seeing there? And just give us an idea of how important is India to future growth, like where -- how big is the market today for Skechers? And where do you think you can go over time?

[John Vandemore, executive]

Well, you know we're not going to say how big the market is, but I appreciate you asking. But it's an incredibly important strategic priority for the company. Keep in mind that we've been growing exceptionally well in India really for the last 8 to 10 years. What you saw last quarter, as we mentioned, was a bit of anomaly in our view, in part because of some of the regulatory changes that had been made that we had not yet had an ability to fully respond to. You saw some alleviation of that, that allowed us to get inventory into the market in a concentrated way and that really bore a lot of fruit this quarter.

In addition, as we mentioned in our prepared remarks, we are seeing tremendous progress in collaboration between our teams, our suppliers and the regulator that we believe will set the table for longer-term success similar to what we've seen up to this point in time.

So we remain optimistic. There are challenges ahead associated with incorporating a stronger supplier base locally, but it's something we're working on diligently. And again, this quarter, I think, is the right example of when we can bring inventory to market in the right way, with the right balance across our product line, it succeeds and succeeds wildly in that market. And it's one we're very excited about for the future.

[Operator]

Our next question comes from the line of Laurent Vasilescu BNP Paribas.

[Laurent Vasilescu, analyst]

David, John, I wanted to ask about the guide for top line. I know you raised the bottom end of the range a little bit. Obviously, in recent conferences, you talked about your expectations for China to be more muted for the back half. So I'm just curious to know what's the offset there that drove a little bit more upside for the top line for the year?

[John Vandemore, executive]

Well, I'd say you hit on the most sizable unknown at the moment, which is the market in China. I talked about that in our prepared remarks. Again, I would stress that long term, we remain fully confident in our opportunity there as a brand. Our talented team there is working to adapt to the environment we're in. And so that's been the biggest net deduct from our view. But obviously, the strength of what we delivered this quarter gave us the confidence to raise that guidance, which I recollect is the second quarter in a row we've done that.

And that's on the back of the strength you saw domestically, you saw in international markets outside of China, really everywhere. As we noted, the wholesale growth across regions, if you exclude China, was all double digits. So what you're seeing is the product coming through, the brand coming through. I think the macroeconomic environment in China will resolve itself. I think it's just a question of how quickly and in what manner.

Right now, I would tell you, what we're eagerly watching is the early returns of Singles Day, which has started out nicely. It's a long way to go, obviously, much like I would probably caution about the holiday season in the direct-to-consumer business as a whole. But so far, what we've seen has been encouraging. We'll just want to wait it out and see how the entire holiday plays out. But that's kind of the net effect of what we changed in our guidance to bring it up by what I would consider to be not so small amount.

[Laurent Vasilescu, analyst]

Very helpful. And then maybe just a 2-part question here. John, I think you mentioned the higher level of in-transit inventory, particularly around the Red Sea. Can you maybe kind of frame us how much do you think leakage will go into 4Q on revenues for top line as we kind of try to model out EMEA? And then second part of the question is really on the gross margin. I think that's a little bit of a surprise for many that the GM was down 80 bps. I can see our bridge for the wholesale and DTC gross margins. Maybe can you just provide a little bit more color. I think you talked about a little bit more discounting. Maybe you can kind of frame how we should think about the fourth quarter gross margin for the audience.

[John Vandemore, executive]

Let me touch on the gross margin first. I would also just note, we set an incredibly attractive gross margins vis-a-vis our historical. Even though we're seeing a little bit of volatility in between quarters, we think the gross margin that we've established certainly reflects an intense and successful effort over the years to bring the gross margin up pretty significantly. So I don't want to lose sight of that.

I would say we had cautioned all along that with the factors at play in particular on freight, but also the environment in China, also just the natural cadence of when you offer product on discount. We were going to see a little bit of movement. We didn't project that this gross margin was going to see a leap like you saw last quarter. So it's pretty much in line with what we expected, probably with the caveat that some of the international markets that we've mentioned came under a little bit of pressure, most notably China.

As we look forward, I would probably guide you to be flat to up a little, down a little for the fourth quarter as compared to last year. We are seeing, and certainly, we've talked about this, the impacts of the increased freight, particularly to Europe but also to other markets that we incurred over the course of the early summer. We want to see that roll through, that will come through. And that was also a bit of the offset at play in the current quarter.

So I would say we get to kind of a flat gross margin, which would be an attractive gross margin, 53.1%, if I'm not mistaken. That's a good outcome in our view, given all that's going on. Relative to inventory, 2 main factors there. Obviously, the sales performance in China was, as we mentioned, unanticipated. That almost always has a knock-on effect on the short-term to inventory. It's one we're actively addressing. It doesn't give us any pause for concern long term, but it is a situation we'll have to remedy in the future simply because our expectations there were not met.

The other is just a continuation of the in-transit issue we saw last quarter. I would say it definitely got better this quarter, but we're still dealing with some elevated in-transit numbers, particularly in EMEA, but also a little bit in a few other markets. But again, we expect that to remedy itself. And that's all included in the guidance that we provided.

[Operator]

Our next question is from the line of Jim Duffy with Stifel.

[Jim Duffy, analyst]

John, to start, a couple of clarification questions. In your prepared remarks, you talked about wholesale continuing to deliver strong growth in the fourth quarter and you spoke to remedy of the inventory situation. Were those global comments more specific to EMEA, which I think you were discussing just prior to each of those comments?

[John Vandemore, executive]

Well, I would say it's a global comment. Obviously, we have to weigh factors that are probability weighted by market. So there's not one number. It's a range of perspectives. But it was intended to be a global indication, which, again, we take as a tremendous sign of the strength of the brand to be able to continue to push forward at kind of a mid- to high teens rate in wholesale would be fantastic. So it was generally intended to be global.

[Jim Duffy, analyst]

Great. And then I wanted to ask on China. Your comments at a conference mid-September preceded the announcement of stimulus. Since then, we've had Golden Week. Have you seen any uptick in consumer activity in the China marketplace since? Or is it really still quite stagnant. And if you could, in that context, speak to the pathway to remedy the inventory situation in China?

[John Vandemore, executive]

Well, one thing we have to keep in mind is that there's been an adjustment. You're seeing the double 11 holiday has started earlier than in the past. So I'm not entirely confident that we're a very comparable experience as compared to last year. I will say, as I mentioned previously, kind of the early read so far are good, and we've been pleased with those.

It's still too early, though, to make, I think, a firm comment on what we're seeing. I would say, as we noted in our prepared remarks, we believe we've derisked China going forward. And that's what we alluded to in some of the conference events that we spoke at earlier in the year. I think that's derisked pretty well in the forward guidance. What I think is remarkable in that, and I'd ask everybody to take note is even with that this quarter, we've shown pretty robust top line growth. And obviously, the guide is for additional top line growth that I think is fairly remarkable.

So if you think about that in the context of our overall strategy, I think it speaks to the strength of the diversification geographically that we have in our portfolio that I think is relatively unique and I think probably one of the great strengths of the business people don't fully grasp. So again, we think we've derisked it. Early reads are generally positive, but it's still very early.

[Operator]

Our next question comes from the line of Alex Straton with Morgan Stanley.

[Alexandra Straton, analyst]

Congrats on a great quarter. I just wanted to focus in just on SG&A here. It sounds like there might be an opportunity for you guys to curtail some of the selling expenses [indiscernible]. I'm just trying to understand kind of where should that go as a percentage of sales over time. It's definitely elevated versus history. And then really the same thing on G&A, just how you're thinking about that in the near term and long term and where that can go from these elevated levels.

[John Vandemore, executive]

Yes. So Alex, as we started the year, I think we were pretty clear about over investing early on a marketing basis in large part to drive awareness for our comfort technologies and some of the newer categories we're launching. We had started that last year in the fourth quarter. So as you look at it from a comparable basis in the fourth quarter, there's much less of a differential from a leverage, deleverage perspective.

So I would say that we generally expect to see a little bit of leverage out of marketing. It's also obviously a testimony to the strength of the top line that we're envisioning. I would also want to call out our distribution team did a great job. We saw leverage there, and that definitely flowed through, and that's why you saw some G&A leverage.

There also is, to be fair, a bit of incomparability because, as we noted in Q2, due to the delays from the supply chain, some of the sales that we would have expected to occur naturally in Q2 came through in Q3. That's certainly something we had to work to achieve. It didn't come free. So again, I wouldn't want to take anything away from the leverage achieved, but there is -- with the sales -- the record sales we posted this quarter, there is some leverage in that naturally.

So I'd say in general, we're looking forward. I don't think there will be significant leverage or deleverage in the OpEx base as it stands at the moment. But that is obviously predicated on a lot to come, in particular, the holiday season.

[Alexandra Straton, analyst]

Great. Maybe just one more quick bigger picture question. As you guys are kind of getting it sounds like more traction with this comfort technology, it's been more appreciated, maybe there's some restocking happening and you guys are expanding into new categories. Is this like opening up what types of wholesale partners that you guys can work with beyond what you've historically done? Or how is your kind of wholesale partner network changing, if at all?

[David Weinberg, executive]

I don't think it's kind of early to see a major change in that. But we're getting tests. We're doing little pieces around the world. Our movement into technical athletics is positive for the brand in general, wherever it is. And we do a lot of our own sales online, direct-to-consumer, so there's plenty of outlets for it. This is just the very, very early stages. And I think we still have a ways to go before we become a major player in that field, but we are certainly taking some steps, and it's certainly working for us, and we're getting some positive feedback around the world in some places, certainly more than others.

So I think it's the early stages. We don't have any really preconceived notions. Our goal has always been to make the product available wherever consumers want to buy it. So I would think, and I do feel personally, that as we continue to build this, there will become a demand in some of those avenues that we haven't been in, and it will give us an opportunity to get started.

[Operator]

Our next question comes from the line of Chris Nardone with Bank of America.

[Christopher Nardone, analyst]

John, just a follow-up on U.S. wholesale. Can you elaborate on how your spring order book is faring and just want to gauge your confidence in growing the domestic wholesale business next year, given the strength so far this year? And then also within the channel, just your assessment on the state of inventory would be very helpful.

[John Vandemore, executive]

It's a little early to be talking about '25. I mean what I can say at this point in time, we've generally been pleased both with the early-stage bookings that we've seen and the conversations we're having with our customers. We just had an opportunity to have them in for a review of the product that's forthcoming next year. And I would characterize most of the conversations is very healthy and encouraging. But it's a little early to be specific, Chris. So I'd probably leave it there.

[Christopher Nardone, analyst]

Okay. And just on just the overall state of inventory in the channel, like how are you feeling about that heading into the holidays?

[John Vandemore, executive]

Good, good. We don't -- again, we've talked about this last year. We haven't seen any significant imbalances. I mean, you definitely need to look at it at the -- almost at the customer level, not kind of the regional level. But when we do that, we don't see any significant imbalances in the aggregate. There's some spots here or there where you see some either sell-through outpacing inventory deliveries or the reverse.

But I would say, in general, we feel pretty good about where inventories sit. Obviously, the key holiday selling period is ahead of us. So we're going to watch that carefully. But at the moment, I would characterize it as fairly balanced. And even though we do have a slightly higher than planned inventory level in certain locations, it's all new inventory, very little static inventory even in China. So we feel pretty good about the composition of the inventory we have as well as that, which is in the market.

[David Weinberg, executive]

Yes. I will tell you, in those meetings, the feedback has all been very positive. And I will tell you from an operational perspective, we don't have any backup at our distribution centers. It's not like anybody is looking to hold back. Even though October historically for us has been a very weak month as far as shipments to wholesale this year, because we have been running late, no one's not taken it and it will hold up significantly better for October.

So there's nothing really that we see that anybody's backing away or has enough or too much inventory at the present time. And anecdotally, the comments we have on what we've shown our wholesale partners and even our own retail people has been very, very positively received. So as we get new stuff into the marketplace, we'll have a better idea of how well that will fare next year.

[Operator]

[Operator Instructions] Our next question comes from the line of Krisztina Katai with Deutsche Bank.

[Krisztina Katai, analyst]

I wanted to ask on ASPs. Just to get a -- foresee the pricing dynamics play out for the fourth quarter. I know you will be lapping some more challenging compares on the domestic DTC side. And just how do you expect pricing to play out during the holiday quarter, if you just think about consumers continuing their value-seeking behavior? And just how do you see industry promotions? Have those changed at all? Or how would you characterize the level of promotionality?

[John Vandemore, executive]

I would characterize promotionality as pretty stable. When we're using promotions, they are proving effective. So it's a pretty small envelope of promotions we're using, but those are the ones that have, over the course of the last 1.5 years or so, proven to yield results. So I would characterize that as stable.

I think in some of the comparability on ASPs is going to adjust in the fourth quarter, given where we were last year. And again, in that instance, we're talking about product that would have been an exclusion in the prior year, but because it's a year older, it starts to fold into some of our discounts. So that incomparability of which I think this is largely the last quarter, that fades. That all being said, I would look at the growth we have established in our guidance as largely volume related.

There'll be some price opportunity, we think, but largely volume related. And then just looking back on Q3, I want to stress that obviously, China being a sizable market to us, that had an impact on ASPs that can't be ignored, and that was obviously a reflection of the current conditions. To the extent those improve, obviously, there'll be a pickup back through ASPs for us.

[Krisztina Katai, analyst]

Got it. That's helpful. And then just a follow-up, I wanted to ask on India. Can you just update us where you are on your local sourcing strategy? Just what does capacity like now? Anything you can share in terms of how much you can produce now within India to supply domestically? And then how should we think about that from a margin perspective as well?

[David Weinberg, executive]

Well, we're working diligently every day. So it's a moving target. What we've done is, and part of this inventory build that you see as an inventory build in India to bring it in as early as possible to give us more time on the higher end to build more.

So we've opened a number of factories. We're testing them. Our quantities grow. It's one of those things that's very much a moving target. I wouldn't anticipate any significant change in margins right this minute as we move through. And certainly, it will be -- should be some benefit to margin as you go through the long term. So I think to John's point, previously, it's a moving target. It's -- we're working on it diligently. I think we're ahead of the game as far as most of our competitors are in getting that space and building that space and getting quality space and higher-priced product as well.

It won't be a straight line, so there may be some distortions along the way. But we feel extremely confident that we're early, that we're making positive progress, that we will be able to deliver. And in a relatively short period of time, it will be an advantage to us rather than a disadvantage because of the early opportunities we took to get going and start moving this production along.

[John Vandemore, executive]

I would only add that we have a meaningful production base in country today. The reality is we produce a very wide array of product. And what we're able to produce locally isn't a complete match to that entire breadth. So it's less about just pure production capacity because we have a very sizable production base in India today. There's just certain categories, certain products that we are not yet able to produce in that market.

So in order to offer the consumer the full array of product we want to bring to the Indian people, we still need to mix in some import until we build the market up to be able to produce most of what we need. So it's not that we don't have production capacity. We actually have, as David noted, I'd say probably a leading amount of production capacity. It's just not the breadth of the product yet that we would want to offer.

[Operator]

Our next question comes from the line of John Kernan with TD Cowen.

[Krista Zuber, analyst]

This is Krista Zuber on for John. First question, could you talk to what you're seeing in terms of same-store sales growth and e-commerce growth and sort of new store productivity? It looks like there's been a fair amount of door growth both domestically and internationally in the past 12 months. And then I have one follow-up.

[John Vandemore, executive]

So I would say -- not getting into too much detail. But as we noted in our prepared remarks, we saw continued strength across the world on e-commerce. That's domestic and all the sites that we've opened over the last couple of years internationally. International comp store growth was very solid, continue to be a very big element of what we were able to deliver from international DTC. The U.S., we were sitting on top of some pretty impressive growth numbers last year, 14% in the quarter. I would say, we generally were about flat in the market. That does imply that with new stores, we saw some give back but I would characterize it as pretty minimal.

And in the end of the day, we're pretty happy to be holding on to the rather substantial increases we saw last year. You're right, there have certainly been a significant number of new doors and more doors to come. Recognize though that it takes time for those doors to get up to productivity. So sometimes, there's always a catch-up adjustment, and that's obviously a number that wouldn't be in the comp numbers, but would be in the total only.

[Krista Zuber, analyst]

Great. And just circling back on the G&A. Could you just talk to some of the efficiencies you're seeing within the supply chain that's driving the leverage that you saw in Q3 and the expectation going forward?

[John Vandemore, executive]

It was really in this quarter about labor management, which is always a significant component of how we deal with the volatility in product flows that inevitably occurs over the course of the year. In addition to that, there were some other pinpoint practices that we went after that we were able to achieve some, I would characterize it as meaningful cost reductions on. But I would think generally considering that part of the distribution network is the right way to think about them. We're optimistic we can harvest some more of those over the remainder of the year.

But in part, it is contingent upon how goods arrive and how quickly we have to process them. To David's point, I think we did an incredibly good job of meeting many of the delivery times, even though we were experiencing some delivery issues, particularly in Europe. So kudos to the team that was able to achieve that given the conditions in the marketplace were less than ideal.

[Operator]

Our next question comes from the line of Paul Kearney with Barclays.

[Paul Kearney, analyst]

On EMEA, can you speak to the drivers behind that 30% growth given some of the challenges in the region? And then how do you think about that growth for Q4 given what appears to be an easier comparison? Then I have a quick follow-up.

[John Vandemore, executive]

It's largely the same thing that we've seen really over the last couple of years, consumer demand. I think as we bring more of our own stores in the markets where the brand either hadn't been participating yet or was in a suboptimal situation, we've tended to see an acceleration on the DTC side. But it's a reflection of the strength of the product.

I think the comfort technology message resonating in markets supported by active advertising, that's really been the case. And for the last couple of years, we've all been wringing our hands about the conditions in that market, which are certainly there, but it hasn't yet shown itself in any way diminish, at least for the Skechers brand, consumer interest in what we're offering. So quite frankly, I don't mean to be glib, but it's the product, it's the advertising that supports it.

[Paul Kearney, analyst]

And the follow-up is on inventory. And wondering if you can help frame how much of the increase in the quarter was driven from higher levels in China versus higher in transit in EMEA? and then on the China piece, what are your expectations for how long until inventory levels can normalize from the region?

[John Vandemore, executive]

Yes. I would just -- without getting into too much specific detail. I think China was the single largest driver and then in-transit were the second. In many markets, on-hand inventory levels actually decreased. So I'll give you a flavor, this is as really the contributing factors, but in that order, China and then in-transit.

I would say how long it takes to remedy, particularly the China situation is going to be largely contingent on what we see over the next 2 months, particularly around Singles Day because that's a very significant event. But I would note, it's obviously a focus of the team there. They know it's a priority. We know it's a priority. It's something we're going to make sure we resolve importantly for us because then it allows new product to get into the market. And we know that's what really drives the consumer at the end of the day. So I would expect it to be a long event, but it is somewhat contingent upon what we see in sales activity over the next couple of months.

[David Weinberg, executive]

Yes, I think it's a good idea to remind everybody that we have the capacity to move that inventory around the world. It's not like it's stuck in China, stays in China. We've shown in the past, and we're very adept at moving that inventory around depending on where demand is. And since we have very few just special makeups for China that's outside our normal range. There certainly are some mitigating circumstances like sizes, colors, et cetera, that we move.

But we make that available around the world, and we certainly take a look at it as we exit this year, John says, once we see how good Singles Day is and how we've done with liquidating that inventory, then we'll take the best efforts to move it around the world to those places where it's necessary and just fill in. So it's a matter of timing. There's nothing that we think is old or debilitating in that inventory per se that can't be moved around the world in a relatively short period of time.

[Operator]

Our next question comes from the line of Yanling Wong with Evercore.

[Yanling Wong, analyst]

I would like to add a little bit more on China. Could you just give us a little bit more details on where was below expectations, do you think the weakness was driven more by overall macro? Or do we think that we missed on some opportunities and sales in the region?

[John Vandemore, executive]

It was a macro condition. I don't think there's anything that would suggest it wasn't given the panoply of data we've seen from other brands. But also, just if you look at where the business underperformed what we had originally thought it's pretty universal. So I think we're pretty confident in saying it's a macro condition. It's not condition specific to the brand.

[Yanling Wong, analyst]

Got it. And when I look at guidance, it seems to imply that the second half operating margins versus prior guidance is guided down. So I was wondering if there's any change to expectations to the fourth quarter operating margins there?

[John Vandemore, executive]

Well, we hadn't previously given anything specific on fourth quarter operating margin. Obviously, as we have adjusted our forecast, we have to take into consideration the flow-through effect and what that means. I would say, most notably, our expectation remains that we will be delivering double-digit operating margins this year, and that's I think something to be celebrated. We've talked about that for a while being an objective. It's not the endpoint, but it's a way point, and we'd be pretty excited to get there this year is our full expectation at this time.

[Operator]

And we have reached the end of the question-and-answer session and therefore, we have reached the conclusion of this call. We do thank you for your participation. You may disconnect your lines at this time.