Skechers(SKX) - 2025 Q2 - Quarterly Report

PART I Item 1. Financial Statements The company's Q2 2025 financial statements show strong asset growth, record sales, and increased net income, with notable merger-related costs Condensed Consolidated Balance Sheets Total assets grew to $9.28 billion by June 30, 2025, driven by cash, with liabilities at $3.90 billion and equity at $5.27 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $4,851,711 | $4,449,423 | | Cash and cash equivalents | $1,377,152 | $1,116,516 | | Inventory | $1,871,805 | $1,919,386 | | Total Assets | $9,278,116 | $8,455,758 | | Total Current Liabilities | $2,315,937 | $2,256,484 | | Total Liabilities | $3,902,607 | $3,635,494 | | Total Stockholders' Equity | $5,273,135 | $4,730,165 | Condensed Consolidated Statements of Earnings Q2 2025 sales grew 13.1% to $2.44 billion, with net earnings at $170.5 million and diluted EPS at $1.13, reflecting strong performance Q2 2025 vs Q2 2024 Earnings (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $2,440,024 | $2,157,643 | 13.1% | | Gross Profit | $1,301,303 | $1,184,437 | 9.9% | | Earnings from Operations | $173,082 | $206,531 | (16.2)% | | Net Earnings Attributable to Skechers | $170,498 | $140,302 | 21.5% | | Diluted EPS | $1.13 | $0.91 | 24.2% | Six Months 2025 vs 2024 Earnings (in thousands, except per share data) | Metric | Six Months 2025 | Six Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $4,851,595 | $4,409,230 | 10.0% | | Gross Profit | $2,555,677 | $2,366,071 | 8.0% | | Earnings from Operations | $438,207 | $505,329 | (13.3)% | | Net Earnings Attributable to Skechers | $372,934 | $346,924 | 7.5% | | Diluted EPS | $2.46 | $2.24 | 9.8% | Condensed Consolidated Statements of Cash Flows Six-month operating cash flow was $448.2 million, with $315.0 million used in investing and $100.1 million provided by financing, a shift from prior year Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $448,178 | $494,432 | | Net cash used in investing activities | ($314,958) | ($240,436) | | Net cash provided by (used in) financing activities | $100,132 | ($163,718) | | Net change in cash and cash equivalents | $260,636 | $90,520 | Notes to Condensed Consolidated Financial Statements Key disclosures include a proposed merger with $9.3 million in Q2 transaction costs, growth across all segments, no share repurchases, and a reduced effective tax rate of 16.4% - On May 4, 2025, the Company entered into a Merger Agreement with Beach Acquisition Co Parent, LLC. The company recognized $9.3 million in transaction costs related to the merger in Q2 2025[25][29] - The company's joint ventures in China, Israel, South Korea, Mexico, and Southeast Asia are considered variable interest entities (VIEs) and are consolidated in the financial statements[31] - As of June 30, 2025, the company had $584.3 million in outstanding borrowings, including amounts under its corporate revolving credit facility and various loans for distribution centers[121] - No shares were repurchased during the six months ended June 30, 2025. The company had $789.9 million remaining under its share repurchase program as of June 30, 2025[55][56] - The effective tax rate for Q2 2025 was 16.4%, a decrease from 19.7% in Q2 2024, primarily due to lower earnings in higher tax jurisdictions[64] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported record Q2 sales of $2.44 billion, up 13.1%, driven by international growth, despite gross margin decline and increased operating expenses Overview The company achieved record Q2 2025 sales of $2.44 billion, up 13.1%, with broad-based growth, targeting $10 billion annual sales by 2026 Q2 2025 Key Highlights | Metric | Value | Note | | :--- | :--- | :--- | | Sales | $2.44 billion | Record quarterly sales, +13.1% YoY | | Gross Margin | 53.3% | - | | Segment Growth | Positive | Increased sales in both Wholesale and DTC | | Regional Growth | Positive | Increased sales in EMEA, APAC, and Americas | | Diluted EPS | $1.13 | - | - The company is focused on building efficiencies to scale for profitable growth and is confident in its goal of reaching $10 billion in annual sales by 2026[87] Results of Operations – Second Quarter Q2 2025 sales grew 13.1% to $2.44 billion, driven by international business, though gross margin declined to 53.3% and operating expenses increased 15.4% - Sales increased 13.1% due to a 22.0% increase internationally, with Wholesale up 15.0% and Direct-to-Consumer up 11.0%[91] - Gross margin declined 160 bps to 53.3% due to higher costs per unit, driven by higher domestic duties from increased tariff rates[92] - Operating expenses increased 15.4%, driven by higher labor costs ($53.4 million), facility costs ($28.3 million), and distribution costs ($24.9 million)[93] - The effective tax rate decreased to 16.4% from 19.7% in the prior year, due to lower earnings in higher tax jurisdictions[95] Results of Segment Operations – Second Quarter Q2 2025 Wholesale sales grew 15.0% to $1.3 billion, with gross margin at 41.4%, while Direct-to-Consumer sales rose 11.0% to $1.1 billion with stable gross margin Q2 2025 Wholesale Segment Performance | Metric | Value | Change vs Q2 2024 | | :--- | :--- | :--- | | Sales | $1.30 billion | +15.0% | | Gross Profit | $538.4 million | +8.3% | | Gross Margin | 41.4% | -250 bps | - Wholesale growth was driven by increases in EMEA (+58.7%) and APAC (+4.0%), partially offset by a decrease in the Americas (-5.9%)[99] Q2 2025 Direct-to-Consumer Segment Performance | Metric | Value | Change vs Q2 2024 | | :--- | :--- | :--- | | Sales | $1.14 billion | +11.0% | | Gross Profit | $762.9 million | +11.0% | | Gross Margin | 67.0% | 0 bps | - Direct-to-Consumer growth was driven by increases in the Americas (+8.6%), EMEA (+27.8%), and APAC (+6.6%)[100] Liquidity and Capital Resources The company maintained strong liquidity with $1.38 billion cash and $614.1 million unused credit, with working capital at $2.5 billion, and $330.7 million in capital expenditures - As of June 30, 2025, the company had cash and cash equivalents of $1,377.2 million, with 95.0% held outside the U.S[113] - Working capital was $2.5 billion, an increase of $342.8 million from December 31, 2024[115] - Capital expenditures for the first six months of 2025 were $330.7 million, primarily for global distribution expansion and retail investments[118] - Financing activities provided $100.1 million in cash, a $263.9 million positive swing from the prior year, mainly due to increased borrowings and no share repurchases[119] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures were reported from the information previously disclosed in the 2024 Annual Report on Form 10-K - There have been no material changes from the market risk information previously reported in the 2024 Annual Report on Form 10-K[123] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of Q2 2025, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[124] - There were no material changes in internal control over financial reporting during the second quarter of 2025[125] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company faces new patent infringement lawsuits from Kizik and shareholder litigation regarding the proposed merger, alongside ongoing patent disputes with Nike - On July 24, 2025, Kizik filed a patent infringement lawsuit against the company concerning Skechers Slip-ins shoes[126] - A shareholder lawsuit (Key West Action) was filed on May 29, 2025, related to the proposed merger, seeking to enjoin the transaction pending further disclosures. A motion for a preliminary injunction was denied[127] - Litigation with Nike, Inc. regarding alleged infringement of six utility patents is resuming after a stay was lifted by the District Court[128][129] Item 1A. Risk Factors New risks from the pending merger include potential adverse effects on business, stock price, and relationships, with uncertainty regarding timely completion and interim restrictive covenants - The announcement and pendency of the merger with Beach Acquisition Co Parent, LLC may adversely affect business, operating results, stock price, and relationships with employees, customers, and suppliers[132] - Completion of the merger is subject to conditions, including regulatory approvals, and may not be completed on a timely basis or at all. Failure to complete the merger could negatively affect the company's stock price and business[133][136] - The company will incur substantial direct and indirect costs related to the merger, regardless of whether it is consummated[138] - During the pending merger, the company is subject to contractual restrictions that could limit its ability to respond to competitive pressures and business opportunities[139] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any Class A Common Stock in Q2 2025, with $789.9 million remaining available under the share repurchase program expiring July 2027 Share Repurchase Activity (Q2 2025) | Month Ended | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 30, 2025 | — | $ — | | May 31, 2025 | — | $ — | | June 30, 2025 | — | $ — | | Total | — | $ — | - As of June 30, 2025, $789.9 million remained available for repurchase under the company's share repurchase program[147] Item 5. Other Information The Board adopted a U.S. Employee Change in Control Severance Plan on August 7, 2025, providing benefits to eligible employees terminated post-merger - On August 7, 2025, the company's Board of Directors adopted a U.S. Employee Change in Control Severance Plan[150] - The plan provides severance benefits to eligible U.S. employees whose employment is terminated without 'cause' or for 'good reason' within 12 months following the closing of the merger[150] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Merger Agreement, corporate governance documents, and CEO/CFO certifications Signatures The report is duly signed on August 8, 2025, by John Vandemore, Chief Financial Officer of Skechers U.S.A., Inc