Good afternoon, everybody. Welcome from—from me to the UBS 2024 Global Consumer and Retail Conference. I'm Jay Sole, UBS's Retailing Department Stores and Specialty Softl ines Analyst. It's great to see everybody here today. Thank you so much for coming. I am super honored and grateful that we have Skechers here today to speak with us. Representing Skechers is John Vandemore, CFO. The plan for today is we're going to do a Q&A session. I have some questions for John, and if everybody has the capability, you can send me a question through this iPad right here. When we get to, toward the end of the 45 minutes, I will read your question, if you like. So to start off, John, thank you again for being here. Thanks for having us. You know, Skechers is a remarkable story. 11% revenue compound annual growth rate over the past 20 years. Skechers is now the third largest footwear company in the world, and I would say the largest footwear company at this conference. Number one. Number one, yeah. The question is, you know, what's been the key to success? I mean, remarkable growth story. You know, how'd you do it? Well, I'd love to take credit for it fully, but I'm going to have to do so on behalf of a much larger and more capable organization than just the CFO, although I hope I help a little bit. The number one answer for us is product, Jay. We are definitely a product-first organization. In our product, we have, over time, come to insanely focus on what we consider kind of the four key characteristics of what people want in footwear, at least from Skechers. That's style, quality, comfort, at a reasonable price. And really, it's those last two, you know, we win on in almost every comparison we've seen to every other brand out there. It's delivering comfort to the user, to the wearer, at a reasonable price that suits the many needs they have. I would add to that, you know, we operate in, and with a—an incredibly diverse assortment. We make everything from running shoes, lately basketball and football, soccer for you Americans, all the way through to, sandals, slippers, boots, and anything in between. That broad assortment allows us to attack the market in a lot of different ways that—that some others can't—can't do because their—their focus is a little bit more narrow. Complementing that is—is our incredible distribution infrastructure. That includes everything from a retail store base that exceeds 5,000 stores today, as well as, you know, pretty extensive distribution infrastructure in many markets that we—we own and operate. Into that we invest a lot of automation, a lot of know-how that's gained from one market and transported to another. Then lastly, it's just, you know, our footprint is global. We do more than half of our revenue outside of the United States. We have a toehold in at least 182 markets around the world. And I think that does a lot for our brand, that's hard to see sometimes if you're just looking at it from a domestic lens, and insulates us from any one market, you know, having troubles. But it also allows us to share knowledge, both product knowledge but marketing knowledge, distribution knowledge, in a lot of other markets. So we can take something that works incredibly well in one market and bring it to another. And for anybody following fashion and footwear nowadays, you know that the speed at which trends circle the globe is increasing. So having the ability to respond to that in our own system is an incredible advantage. And then last but not least, I'll throw in the CFO. Yeah, that's definitely been the key. Absolutely. Well, you know, you mentioned the distribution model, which I think is a really unique aspect of the company that maybe not everybody appreciates. Because Skechers is a company that has, you know, full-price stores in the best malls in America and—and around the world. It has outlet stores. It has warehouse storage, which is sort of like a combination. You have a great e-commerce business and also a great wholesale distribution across many different types of channels. There really isn't another footwear company in the world that has so many channels covered. John, the question is, you know, how can you be in so many different channels and be profitable in each of these channels, you know, and—and—and make it work for the brand? Yeah, I'd first like to say, I mean, I'd love to pretend that that was a well-formed strategy 20 years ago, where we saw the future and we predicted that it was important to be in all those channels. The reality is it's actually not that precise. It's been an organic development over time. Our original entry into the direct-to-consumer business, for example, was largely because we couldn't get as much distribution as we felt was appropriate for the range of product we were bringing to market. So we didn't enter our direct-to-consumer business out of tremendous forethought and strategic vision. We did it because we had to. I also think it's a reflection of our embrace of the consumer. As much as we would like to pretend that we can tell the consumer where to buy our product, how to buy it, and at precisely what price we want them to buy it, that—that's not our—we don't think that's our role. So our approach is designed to be reflective of the consumer. We want to be where the consumer is. If that's in our own stores, fantastic. If it's in a partner door, fantastic. If it's online, great. So we really embrace that—that mantra of, you know, where they want it, when they want it, how they want it. And—and we've lived with it for quite a while, I think, in some instances where—where brands have had to, you know, pivot to direct-to-consumer. They don't have the experience we have, of avoiding channel conflict, like you mentioned. The number one advantage we have in that is that if you take any microcosm of our business, particularly in the wholesale side, you know, a wholesale partner is not often going to look to the whole assortment, the whole range of product we offer. They're using a subset of it for their needs in their business, which is entirely appropriate. The result, as such, is that there's very little overlap between any given wholesale partner and our own DTC business. And in many ways, quite frankly, they act, you know, in a collaborative fashion. When we market our product, we don't market Skechers branded shoes in Skechers stores only. You know, we market the product. We market the feature. We market the brand. And that lifts, you know, all boats who are willing to display and treat the brand in appropriate fashion. So I think we found this capability, this practice to be able to work very collaboratively with our partners, to leverage our own direct-to-consumer business, and from that meet the needs of the consumer, which is the end goal. Got it. And, you know, you mentioned Skechers has 5,000 points of distribution, you know, Skechers stores all over the world. Yes, Skechers stores, yeah. Just talk about how that helps build brand equity. Yeah, I mean, the reality is when you operate stores, you know, you always get asked, or, you know, "Is every store profitable?" And the reality is not every store is ever going to be profitable. And one of the main reasons for that is stores serve two purposes. They definitely serve as an outlet to distribute product, to sell product, and to make money. But, you know, some stores actually have tremendous marketing value to them. There's some not far from here. But I would say what we find is in any given market, initially, especially initially when we enter a market, it becomes incredibly important at some point in time to have a retail presence. Because it's a testimonial to the brand, but it also displays the brand in its best possible way. You know, we are obviously always going to be the most interested in displaying our brand at, you know, the highest possible level. And so a retail establishment allows us to do that. Where we find it has a tremendous impact is really, in all honesty, the first, call it, 10-20 stores. Because, you know, even if you're into wholesale in a market, until you have a brand presence in a retail store, it's hard to really distinguish yourself from other shoe companies. You can do so via marketing, but-but that really only takes you so far. And so what we find is, you know, in a market that's relatively new, that starts with wholesale, we significantly advantage the brand in both channels by bringing in retail presence. And-and we do that through a variety of ways. We'll open our own stores, but we'll also use franchise partners to open doors. Because what we want is we want the brand to be present in a way that is, you know, additive to the image of the brand. You know, one thing we do control very tightly is how that brand is reflected in the retail environment. You know, we have individuals who travel the globe checking on as far away locations as in Uzbekistan, as well as, you know, Brazil. You know, making sure that that retail expression is true to what our standards are. It all becomes part of the mix of getting your brand in front of consumers and illustrating the depth and breadth of the brand. Because that's not easily done in just a wholesale environment. Yeah. Well, I can attest to the consistency of the store presentation across the world. I was in Uruguay, and I saw some stores, and it looked just like, you know, Scotland and Sydney and Japan's. It's amazing. Everywhere I've ever been, it looks like a Skechers store. The benefit of having our fleet is, whenever anybody goes on a vacation anywhere, I usually get a picture of them in front of a Skechers store. And usually my next question is, "Can you take five or six pictures of the inside and just send it back to me so I can make sure that they have the right, right point of sale up, that they have the right product out? That's funny. All right. Another thing that I find quite remarkable about Skechers that I think not everybody is aware of is the consistency in the gross margin, and not just the consistency, but the consistent improvement in the gross margin. If we go back 10 years ago to 2013, the gross margin was, you know, 44.3%. Ouch. Not a bad number. But this past year, it was 51.9%. And other than the COVID year, which obviously was an unusual year, it's been on a steady climb up despite all the inflation that's been out there, all the inventory builds that's been out there in the industry from other brands, and a lot of FX volatility. In a global business, you've dealt with a lot of FX swings. John, what's been the key to be able to just be on that steady path of maintaining that gross margin increase without having the big fluctuations that we've seen other brands have to deal with? Yeah, I think it's a couple of things. You know, first and foremost, it is, you know, on the back of continuing to develop really good product, which, you know, over the years, we've come to emphasize the features, particularly features around comfort. We would refer to it as our-our comfort technologies. Because when we embed those in product, what we find is we have the ability, we have the license from the consumer to charge a little bit more. That's a-that's definitely a margin-enhancing play that we've been operating with for, you know, really the last decade. So that's helped. I, you know, I think certainly mixing our business, more to international, more into DTC over time has been, an advantage to our overall margin. I would also add that, you know, over the course of COVID, as unpleasant as many of the effects were on costs and margin, it gave us an opportunity to rethink, you know, what I think had kind of grown up organically as some relatively unnecessary discount structures and incentives. And so in the background, you know, we've been eliminating those slowly, you know, not in a way that disadvantages customers or consumers, but, you know, with some regularity so that what we have now, I think, is a very good reflection of, from a merchandise level, what we can achieve, you know, in the margin of our products. And then, you know, being able to carry that down through to the, you know, the aggregate P&L is important. That being said, you know, that's never a fight that's totally over. You're constantly struggling against things like FX, input cost variances, inflation. You may have heard recently, in the last couple of years, there's been a challenge with shipping costs. So, you know, you're always fighting that battle to make sure you maintain the margins. But we feel really good about where things stand at the moment and think, you know, it's an adequate reflection of what our product deserves in kind of the marketplace. So that makes sense. I want to follow up with just the inventory management aspect of it. Because if we go back 15 years ago, when people would talk about Skechers, inventory management would be an issue, maybe buying too much into a fashion trend, and maybe that fashion trend shifts or something like that. But, you know, something has changed that's really helped the company manage inventory in a really efficient way and not get caught with too much or even too little at times. What's been the approach? How has that worked? And just tell us a little bit more about how that's served the company. Yeah, I'll first let me share a quote that, that I love that our Chief Operating Officer, David Weinberg, has, and he's used it several times in the last year. It goes something like this: "If, you know, if you're not focused on inventory every day, you really shouldn't be in retail." I think there's an absurd amount of truth to that. I think there's two dynamics at play mostly. You know, one is that we—we are a different company today than we were five years ago, 10 years ago, 15 years ago. We've got a more diverse offering. I think that allows us to withstand the fluctuations in trends that come and go in footwear. I mean, there's no doubt that happens. There's nothing we can do to change the dynamic of the footwear industry. But, you know, having a broader portfolio of product helps us absorb those a little bit easier. I would say, though, you know, one of the things that I'm most proud of over the last couple of years is that, you know, we had some really significant supply chain challenges. At first, they left us in a deficit of product in a very meaningful way. At one point in time, I remember our stores being, you know, on average half empty or half full, as the optimist might say. But either way, not where they needed to be. And then what we dealt with was a tremendous onslaught of inventory that came in a very compressed time frame. And we rose to the challenge of meeting that, you know, as Jay knows, unfortunately, we spared no expense. It did cause us some short-term harm. But what we felt was important was right-sizing the inventory quickly. And predominantly because our philosophy is that producing newness, delivering newness, and innovation to the marketplace is paramount to our success. So what we needed to do, we knew, was get the inventory in and get it out. And so in doing, allowing us to bring the next new thing in. In 2021, 2022, at one point, we had spent an extra $500 million on inventory. Subsequent to that, we very consciously, you know, focused on winnowing that down. We did so to the point where, you know, last quarter, we were down by nearly a third. We had re-harvested most of that investment. But I think probably most importantly, we did so while maintaining, you know, that gross margin trajectory. I think that's, you know, that's an incredibly hard feat to accomplish in the best of times. But to do so, you know, in the midst of kind of COVID recovery, I think, was a great accomplishment. And it's a reflection of our day-in-and-day-out focus on inventory. We try not to take, as a company, a lot of inventory risk. We're not looking to speculate much on what would succeed or not succeed in the marketplace. Our mantra is, "Let's identify what's going to work, and let's follow it fast." And we employ that strategy throughout our organization. And in fact, we employ that with our wholesale partners, too. You know, we're always focused on, "What does channel inventory look like? Should we, you know, adjust the flow of goods to a partner to make sure they stay healthy?" Because the reality is, you know, going back to that—that business we have that is pretty evenly balanced between wholesale and direct to consumer, you know, we're in the market, too. You know, the last thing we want is somebody to be in an over-inventoried position and have to take drastic action to move that inventory. That—that will harm our DTC business over here. And so I think what we've been able to achieve is a—a healthy symbiosis between our wholesale partners and our DTC business. But—but upstream, the key component to that is managing inventory well. Got it. I want to ask you one about the balance sheet, before we get into some of the more kind of 2024 topics. But the company has almost $1 billion in that cash on the balance sheet right now. And it's always kept a fortress balance sheet. Yep. John, tell us, why has the company taken that approach? How has it served the company well? And then if you could just add on, tell us about how you manage the lease portfolio. Obviously, lots of points of distribution. Yeah. What do you make sure that stays healthy as well? Yeah. On the capital, I mean, you kind of mentioned it. Our number one priority from a capital allocation perspective is to maintain a fortress balance sheet. We're not rated. But if we were, we would expect it to be pretty high quality, i.e., and the reason for that is, you know, the retail, the fashion industry is tough. You go through these moments. I think the example I just gave on inventory, you know, when I had to go find $500 million to put into inventory over a nine-month horizon, that was pretty easy to do because we had the balance sheet to do it. If we didn't, we would have had, you know, certainly some very severe pressures to face. So our number one priority is to ensure we have the balance sheet to withstand what I would call the vicissitudes of a fashion-driven business. So, you know, we make sure that we're in a strategically healthy position liquidity-wise at all points in time. It doesn't mean that we don't take opportunities to redeploy cash. Certainly, you know, now that we're past some of that investment, that working capital investment required by the supply chain disruptions, you know, we are more actively pursuing other returns. But it will always be with an eye towards, you know, managing that balance sheet with strength. In terms of leases, that's actually kind of an interesting question. Because, as I'm sure many of you don't care, the standards for leases changed a couple of years ago, such that instead of, you know, not recording lease obligations at all on your balance sheet, you had to put, you know, the lease obligation on and then what's known as a right-of-use asset. Both of these are kind of made-up numbers. But what—what they portray is the obligation you face when you have, you know, a—a wide-ranging lease portfolio. I would tell you that we monitor that at the micro level as well as at the macro level. At the micro, it's really about, you know, are we in a store in a location that, A, we need, or, B, is productive? It's got to be one of those two or both. And so we're managing that on a regular basis. We're calling stores, actively every chance we get. And it's a, you know, it's an intense process across the globe to make sure that we're not, you know, deteriorating our margin structure or inhibiting our ability to be profitable and grow by just hanging on to a location. That's not healthy for anyone. In addition to that, you know, we manage it at a micro or macro level to make sure that our overall obligation pool sits both from a duration standpoint and a tenor standpoint, as well as just at a cost standpoint that makes sense. And that's just an active process. You know, it's one, I think, that every business gets better and better the more you do it. And so with over 5,000 stores now, you know, 1,600-plus company-owned stores, you know, we are getting better and better. What you notice over time, though, is, you know, there's different characteristics to different markets. So when you talk about, you know, a lease in Asia, you know, if it's a three year lease, it's a very long lease. If you're talking about a lease in North America, you know, a three year lease is pretty short, you know? And so you have to adapt to each market and understand how you're structuring those leases to give you the maximum amount of protection, but also, you know, the opportunity, the opportunity to succeed with a—with a retail footprint. Because that's, unfortunately, that's not guaranteed just because you open up a store. Right. Okay. So maybe looking forward, can you just talk to us, what are the company's key strategic priorities? Well, as we looked at 2024, you know, our-our first hope-and this isn't really a strategy, so I'll admit that-is that this is a more normal year than we've seen in the last couple of years. You know, there's been innumerable challenges across the landscape of our business and-and many businesses out there. So, you know, our-our expectation is that this becomes a much more normal year than in years past. From that point forward, you know, we feel really good about the product portfolio we have. If, if the first and second largest footwear companies in the world were here, I-I would challenge our innovation of late in the product area, against theirs, you know, pretty confidently. I think we've done a lot to bring newness to the market. We've done a lot to bring technology. And again, a lot of that focused on something they don't care much about, which is comfort. My apologies for anybody wearing their shoes right now. But I think that innovation gives us a tremendous advantage across the globe. Our traditional growth strategy is the same one we're going to be employing next year. We're going to focus on growing international markets. We're going to focus on growing our direct to consumer business. That's B2C stores, online, and quite frankly, the melding between those two. And then I think the outlier opportunity is the domestic wholesale marketplace, clearly one that's been challenged of late. You know, we're actually cautiously optimistic on what we're seeing out of the domestic wholesale marketplace. We're seeing good booking trends. The tenor of our conversation with partners has definitely turned more positive. I wouldn't go so far as to suggest, you know, we're fully out of the woods in terms of challenges in that retail landscape. But I do feel like it's getting better. I'm excited to see the response to our next season that we'll be showing, you know, customers over the next couple of months. But I feel good that we're making headway against some of the challenges that we had last year. In terms of those strategic priorities, can you just talk about some of the ongoing investments to unlock the opportunity to become a bigger company and to grow, specifically omnichannel, some supply chain, and loyalty program, which has been something you've been working on for a while? Yeah. And that's really just a small microcosm of what we've been working on. And I think in part, that's probably worth mentioning, that, you know, we are definitely a work in progress as a company, in that, you know, we need to continue to scale up to the size that we've become, to have the capabilities that we know consumers need. You know, online was a very big focus for us. Right? You know, coincidentally, right before COVID, we replatformed almost every site we had in the world. And then we added about 15-20 new sites. Had we not done that, it would have significantly disadvantaged us during COVID and beyond. And in addition to that, you mentioned, you know, we've added a significant upgrade to our loyalty program to complement that. We've also spent a significant sum kind of tying back that online presence to our in-store presence. You know, at the end of the day, we generally think about this from a consumer perspective in that, you know, the consumer doesn't say one day, "Golly, I'd really like to buy a pair of Skechers shoes in a store." They really say, "Oh, I need a pair of shoes. What's out there?" Right? So you have to first get to them. But then you also have to make it, you know, effortless for them to transact. If they need the shoes in the next hour, then you have to have a store nearby. And so we have a store estate. You know, if they want to reserve before they get there, they can do that online. If they want to buy before that, they can do that. If they buy online and they want to return to a store, you can do that. So making all of that a very seamless interaction at the consumer level, we think, is, you know, quite frankly, at some point, it will be kind of the bare minimum for retail activation. We've also put a lot of time and energy into distribution infrastructure. We feel in most positions across the globe, it's important for us to control our own success. And that means owning and operating our distribution. In the United States, we have over 2 million sq ft of distribution space, heavily automated. We just opened, you know, a handful of new distribution locations across the globe: Panama, Colombia, Canada, India. We're in the process of building a second distribution center in China. And the key to that is, we want to make sure we control our destiny. So we invest a lot in that to own it. You know, we have to go through the pains of starting up. But then when we have that infrastructure in place, we find that it's the most efficient manner for us to get product, you know, from point A to point B. You know, one other area I would tell you just we're investing in because it's not always the most, it's the most sexy area is, you know, the back of the house. You know, implementing systems to be able to operate at scale like we do, is a never-ending challenge. We're always investing in, you know, how do we make our business operate better? Is that a, you know, a new HRIS system like we'll launch this year, or a new backbone GL, or, you know, ERP? You know, there's a lot of opportunity for us in the future continuing to invest in those capabilities to support our business globally, because, you know, it's hard operating in as many locations and geographies and countries as we do. So, you know, we find it increasingly important to continue to invest in those capabilities to advantage our business in those locales. Okay. I want to ask you about the long-term revenue growth opportunity. John, the question is, you know, how should we think about it? I mean, what is the long-term revenue growth opportunity? Yeah. I mean, it depends on what you mean by long-term. I would say, in general, and I know this will sound a little bit boring, you know, the strategy we've been following, we believe, is the roadmap to future growth. The fastest growing markets are, you know, unfortunately, not the domestic markets, although we do think there's some outsized growth opportunities here. So our first focus is growing outside of the United States. That's in wholesale. That's in direct to consumer. But ultimately, growing our footprint across the globe. You may ask me, unfortunately, in the future, you know, what's your favorite growth opportunity out there from a global perspective. And then I will endlessly read off every country we're in outside of the United States. That belies our confidence that we have opportunity in a ton of different markets, from Southeast Asia to South America, Eastern Europe, even in some Western European markets. Outside of the United States is where, you know, the predominance of our growth will occur over the next three to five years, to be sure. Inside the United States, we actually think we have outsized opportunity to continue to grow our direct to consumer business. We're far from fully penetrated in the United States. You know, we're operating just north of 550 stores today. We think that number can be significantly higher, even if you consider how you want to leverage digital. You know, we think the presence of stores is additive to the brand, additive to the consumer experience. Kind of the outsized opportunity in the U.S. is to continue to grow that DTC business. The domestic wholesale business, you know, we do think has the opportunity to grow. It just won't be growing at those leaps and bounds every year. The last, you know, two to three years have been a little bit extreme, you know, extreme ups and extreme downs. You know, our view is that, you know, the domestic wholesale marketplace, you know, is a reliable but slightly slower growing market, but one that obviously contributes, you know, very healthy margins and results to the bottom line. And so, you know, being our home market, being the one we see most regularly, it's also a critical component of our overall growth trajectory. Got it. So we got a question from the audience that came in, I think, is a nice pat on the back of your answer about, you know, domestic wholesale. And there's been lots of ups and downs. The question is, can you frame the risk of Nike coming back to undifferentiated wholesale? And I guess I'll just take that to wholesale in general. Oh, I got to watch what I say now. First of all, who wants to be the retailer that's, like, undifferentiated guy out there? I'll be honest with you. I don't sit up at night worrying too much about Nike. It's not that they're not a very capable, you know, footwear provider. But the reality is, you know, Nike's been competitive in the markets in which we operate since we've started, and it hasn't limited our ability to grow. I would also add that there's a lot of categories we play in that Nike doesn't. And so, you know, more often than not, quite frankly, Nike isn't our direct competitor. Now, certainly, at their size and scale, which, you know, we're jealous of, they can have an influence on the marketplace. But in terms of day-in and day-out competition, it really isn't our primary concern. I do wonder, you know, I feel bad for retailers who have been rejected and then, you know, kind of accepted back. It's starting to feel a little bit like an abusive relationship to me. But since I'm not involved in it, it's not something I'll get involved with. But again, I, you know, it's not something we worry about, you know, either those guys or the guys from Germany. I mean, we're happy to compete. We think, you know, to borrow a bad phrase from Boxy, I think pound for pound, you know, we feel pretty good about how we compete. Okay. Another from the audience. Forgive me if I'm going to paraphrase here a little bit. But, the question is about providing value to consumers. You know, it's part of the Skechers DNA. Yeah. The question is, will you be able to increase your average price through product mix shifts? And do you, do you want to do that? Do you want to narrow the gap in price versus your competitors? This is going to sound very odd coming from a CFO, but I swear I am one. I don't worry as much about price as you might think. We don't aim to be a price taker, certainly not at the expense of our wholesale partners or at the consumer. What we focus on is value for the money. What are we giving you? And then as a result, what are you willing to pay for it? I'm a big fan of the statement that nobody sets a price other than the consumer. And I think it's fundamentally true. And so what our focus is on is how do we deliver more value to the consumer in one way or another, and then can we get a fair price for that? And I think that focus has served us well. It does mean that our strategy, I think, is a little bit different sometimes. We're not playing as much off of scarcity as others. You know, we're not playing as much off of, you know, branding as others. What we're really playing to is those same kind of four characteristics: style, comfort, and quality at a reasonable price. If I can get—if I can get three out of four of those right, then I'm going to get a reasonable price from you as much as for you in that equation. And we—and we feel really good about that. The way we've been managing that lately is by adding more comfort technology to the product, adding in Skechers Hands-Free Slip-ins technology, adding in Skechers Arch Fit technology, you know, focusing on wide widths, which a lot of brands don't produce anymore, you know, our Max Cushioning product. All these capabilities, these characteristics, these functions that deliver more comfort and value as a result to the consumer. And so far, what we've seen is very positive response from the consumer to that. So it's not much in our eye about managing ASPs as it is about, "Let's deliver good value for the money. And, you know, if we deliver more value, we'll get more money." And that generally has held true. An interesting side note, you know, people have asked lately with the, you know, you know, where's the middle-class consumer going? How's that impacting? Are people trading down? Of the last, you know, over the last two years, what we've seen is within our portfolio, consumers are actually climbing up the value curve. They're willing to pay a little bit more for that value. And so that's actually been a positive trend for us. You know, it's interesting because the value proposition, I think, is one reason Skechers can play across so many different categories because the brand is defined by value rather than just, say, a sport like running or basketball, where the consumer's only going to be willing to see a brand as authentic in that one specific little narrow sleeve of business. Yeah. But recently, you know, you've leveraged the value proposition to two new categories. Yep. Basketball, huge category. Soccer, obviously big business for some of the other competitors that we've mentioned already. Tell us about entering those categories and. Yeah. And how it's going so far. I just have to correct you right now. You—you can't say soccer. You have to say football. Europeans will kill me if I say otherwise. Y eah, they're—they're definitely new categories for us. But I would say, you know, our strategy isn't going to be remarkably different in those categories once we're firmly established from a commercial standpoint. How we've chosen to start in those categories is, I think, you know, for us, the right path forward, which is, you know, first, we had to ensure we could build great product. We weren't—we would not have gotten into these categories if we weren't fully convinced that we could build great product. We onboarded a team that had tremendous skills and depth in these categories. And so, you know, the first charge to them was, "Go out and build great product." You know, once we—we're convinced we had that. I assure you, we didn't just rely on our interpretation of good product. We actually put it on the feet of athletes and asked them what they thought. Once we had positive confirmation that the product was there, we knew we next needed to validate, you know, if you will, our bona fides in the market, right? It wasn't enough to just say to a consumer, "You know, we've built a great cleat." You know, that—that wasn't going to cut it. And so in working with partners like Harry Kane, Julius Randle, Terance Mann, a lot of others out there, what we sought to do was make sure that the consumer understood that, you know, quite frankly, if it's good enough for those guys, it'll probably work for me on a Sunday with, you know, five other middle-aged guys. And so once we've established the bona fides of the product and the quality, we believe it'll afford us the opportunity to go after it commercially. Now, when you see us go after it commercially, what you'll see is a very common strategy, which is, you know, our perception is there really is, you know, not as many players, not as much competition in those two categories as there should be. It's very rare where you have, you know, that concentrated of a share position by just two brands. And so we think we can offer something unique. You know, we think it will be a little bit more focused on, could you not, you know, on comfort, on capability, but also we'll have a more reasonable price aspect. And so as we, you know, get past establishing the, you know, the quality of our product firmly in the public's mind, we'll bring out a commercialized range that has, you know, a price structure that does, you know, err on the side of being more reasonable, we feel, but also across more categories, including, you know, men's and women's, kids, you know, cleated, turf, you know, basketball, you know, high, low, all the categories. Ultimately, we'll see what happens. You know, what I think we have that others don't when they've entered the space in the past is we have a lot of capabilities. We have a lot of patience. And to be certain, you know, it's not the only avenue of growth available to us. You know, this is and can be potentially an avenue of growth, but it's not the only one we have. So our future is not really dependent upon just these categories, you know, succeeding. So, we're going to give it a go. We're pretty excited about it. It's fun. It's also, you know, you know, new to us that, you know, when you bring on a brand ambassador and they start performing really well, you can fully attribute it to your gear, which is great. I'm not sure it's completely accurate, but it's fun to see the athletes that you support succeed, in part because, you know, they're actually, they're actually very eager to help you as a footwear company succeed. You know, the amount of good input we get from these guys is actually priceless in the sense that they're telling us, you know, what similar athletes want to see in product, and then we can build that into what we design and develop. And that's very valuable as well. It's very—it's really a partnership. Great. All right. I want to transition for a second and talk about the company's long-term operating margin opportunity. Yeah. John, how would you describe it? What are sort of the two or three key drivers? Well, so we've always said that our business has the opportunity to achieve that kind of low-teens operating range. I think we've traditionally said 11%-13% just as kind of a, you know, a range to think about. What has inhibited us, you know, between now and that point, you know, has largely been the investments we make for the future. And the example I give, and I know this is a trite example, is, you know, every store we operate, as much as we wish it were profitable day one, it's not. You know, it takes time for a store to season in a market. It takes time for consumers to become aware of the store. And so, you know, every store we open, even though we open it with the expectation and largely the success of seeing it become accretive to our operating margins, starts off a little bit behind. So as you make those investments, there are always something for the future that drag your near-term. I mentioned operating, you know, our distribution centers. It's, you know, costly to set up and operate a new distribution center. And when they start operations, there are always, you know, learnings you need to achieve before you get to full efficiency. And so, you know, there's a lot of investment for the future that impedes, you know, that full margin realization today. But quite frankly, those are the trade-offs we're completely willing to make to get our business to kind of that next level, which for us, we've set, you know, $10 billion is the next, you know, near-term mark to achieve. I would also add of late, you know, we have overspent a bit relative to our historical average on advertising. You know, one of the reasons for that is we think we believe we have a very effective technology in our Skechers Hands Free Slip-ins. And, if anybody watched CNBC, I guarantee you've all seen a commercial or two. And the reason for that is we want to make it clear to the consumer that this is a Skechers technology. This is something we've brought to the market. We're already seeing imitations out there. What we want to win on in this one in particular is that we thoroughly brand the technology so people will recognize that it was Skechers who brought this to the market because, you know, we do expect to see, you know, some pretty stiff competition later, you know, in that kind of space. I want to follow up on that idea of, you know, you've always made a lot of investments to drive future growth. I know you always get the SG&A question from everybody, and you always get it from me. But I'm going to ask it in a different way this time because really, I personally consider the investments in the company as willing to make the investments to drive long-term growth at maybe the expense of, you know, near-term margin upside as part of the secret sauce of the company. It's one of the reasons it's the third largest footwear company in the world, growing at a double-digit figure for 20 years. The question is, how do we know the company will continue to make that choice to think about the long term, make the right investments to drive, you know, get more shoes on more feet and get to $10 billion and beyond, and not make the sacrifice just to get to a little bit more short-term margin gain? Yeah. I mean, it does take discipline. I know that sounds silly because I've just said that it takes discipline to spend more SG&A than all of you guys want me to. But the reality is, it is spending toward the future. I think one of the benefits of our structure, you know, one of the benefits, quite frankly, of our seasoned management team is, you know, we're willing to make that investment. When I first got to Skechers, I was, you know, coming from outside. And at times, it took a little bit of adjustment to get used to how quickly we could make a decision to invest in the future. There was no, you know, endless hand-wringing session about what it meant for EPS guidance. There was no, you know, four-inch-thick presentation that needed to be made to, you know, several executives in the board because our ethos is, you know, our number one objective. And quite frankly, the way we're going to drive the most value for shareholders is to continue to grow the business. I mean, that will get us the most value at the end of the day. It also will serve to cement, which we want to do, our role as the third largest footwear company in the world, if not, you know, maybe catch up to somebody someday. And so, you know, that focus has allowed us to continue to have the license to think about what investments need to be made. You know, it certainly helps that we have a high-growth business. And so, you know, that affords us the opportunity to invest ahead of time. And I say that, but I don't want it to sound like we don't also look at opportunities to be efficient. We absolutely do. But, you know, if I had two decisions to make, and I could only make one, and one was biased towards, you know, investing for growth that we felt very confident in or, you know, investing to save a few pennies, we're going to invest for growth. And I think that's the right answer for both the brand but ultimately shareholders. There will likely come a time when, you know, the growth opportunities, you know, are a bit diminished or a little bit less. And we will focus more on driving, you know, ultimate profitability. But for right now, the opportunities are so vast in front of us that we feel like that spend on incremental, be it SG&A, be it, you know, CapEx, is well worth it for the shareholders and quite frankly, for the brand. Got it. All right. So in the last few minutes, I want to ask a little bit about what you're seeing right now. You know, you—mentioned a little bit. You sounded, you know, positive what you're hearing domestically from the wholesale channel partners. I want to ask you about China. Mm-hmm. both in the near term, you know, how are you seeing that market? A lot of talk about macro consumer spending trends in China, but also bigger picture. Are you still confident in China, when you think about the multiyear view? Funny, my response is going to somewhat dovetail with that—that last question. You know, we have the patience to stay in markets that we think have long-term opportunity. I would share that we're probably a bit more bullish than what I'm hearing about generally in the market on China. Last year, the results in China, thanks in large part to the execution of our—our China team there, outdistanced our expectations. So it was a much better year than we thought going in. That was an incredibly, you know, pleasant surprise. It seemed to us to indicate, you know, continuing improvement in the marketplace. I wouldn't say that, you know, things are back to normal per se, but they are getting better. You know, clearly, there are going to be some challenges near term with some of the macro conditions in that market. But, you know, in all honesty, what market doesn't have, you know, macro trends? And if they can hit, you know, a 5% GDP growth rate, that's still far better than you're getting in a lot of other markets. But more importantly, the growth opportunities we see in that market, you know, are not, well, not completely insulated from those effects, you know, aren't going to be completely taken away because of them. You know, we still see a tremendous number of individuals transitioning into kind of middle-class roles, earning middle-class incomes as a result, having more discretionary spending power. We know there's opportunities for us to open more stores, to get our brand in front of more people. There's also incredibly exciting channels, you know, that are burgeoning in that market that you don't see anywhere else. I don't know if anybody's had the benefit of seeing, you know, a live streaming session in China, but it's an incredibly innovative, you know, social media plus QVC model that is working really, really well and growing really, really fast. You know, I have aspirations of becoming a social media influencer on a live stream someday. What it tells you is there's a lot of opportunity. There's, you know, continued growth in that market. Ultimately, I think the benefit that we bring to that market is, you know, powered by the product. You know, we're, you know, as much as we're among the most innovative here, we're among the most innovative there. Not to say it's easy because that is a highly competitive market with some very capable local players. But we feel good about what we can bring to market and the technologies and how they resonate. And so, you know, I look at China with a lot of optimism. You know, again, there may be some short-term hiccups we need to deal with. But given our experience last year, given our dedication to the market, let me say this. I wouldn't be investing in a second distribution center in that market if we didn't have full faith and confidence that that market was going to continue to deliver growth for the Skechers brand. And we're excited about it. Got it. Okay. Thank you for that. Last question. Just on the promotional environment globally, you know, a lot of talk about maybe is inventory still kind of high? Or is there still a lot of discounting happening out there? How's that affecting you? You know, what—what are you seeing? I would describe the promotional environment as pretty stable. You know, I'm a CFO, so I, you know, I'm-I'm a big fan of no promotions ever, full-full-price sell-through only. But the reality is that's not what consumers want. And so I think what's been distinctive about this promotional environment relative to, you know, the last three or four years really has been that it's, it's doing the job it's intended to do. It's driving conversion. It's driving unit sales. It's driving the consumer to store. And so as much as I would prefer to only be full-price all the time, you know, giving consumers what they want and to incent them into the stores, to incent them to transact, to incent them to buy more than one pair on a visit, that's all well-well worth it. I think the results last year, our DTC business was up over 20%. Clearly, you know, testify to that being a component of the success. Clearly, the product was also a key element of that. But, I would generally say that still seems to be what is effective. And I haven't noticed anything that will have or will in the future change that, demonstrably. Although I will note that, you know, it's kind of like inventory. It's one of those dynamics you always have to be focused on, always be aware of. But right now, we feel like it's stable. It's constructive. It's doing what it's intended to do. And so, you know, we'll continue to, you know, view it that way until we see something change. Okay. All right. Well, mind you, one more question. Are we only at 15 seconds? We're at 15 seconds. For your time incentives. Yeah. Super lightning round question. Free cash flow buybacks. How do you feel about it? Look, when we have the cash, we definitely look at opportunities to return it to shareholders. We're certainly not adverse to that. The last couple of years have been a little bit challenging with some of the working capital needs. But I think without abating, it gives us more opportunity to think of ways to put cash back to work, including directly to shareholders. And so, you know, we'll continue to consider that actively. Outstanding. All right. John Vandemore, thank you so much. Really appreciate everybody's time today. John, thanks for doing this.