UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-14429

SKECHERS U.S.A., INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4376145
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

228 Manhattan Beach Blvd. Manhattan Beach, California	90266
(Address of Principal Executive Office)	(Zip Code)

(310) 318-3100

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share	SKX	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 24, 2020, 136,173,766 shares of the registrant’s Class A Common Stock, $0.001 par value per share, were outstanding.

As of April 24, 2020, 21,573,045 shares of the registrant’s Class B Common Stock, $0.001 par value per share, were outstanding.

SKECHERS U.S.A., INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Earnings	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
	Signatures	47

2

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par values)

	March 31,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,158,766		$	824,876
Short-term investments		130,658			112,037
Trade accounts receivable, less allowances of $27,790 in 2020 and $24,106 in 2019		796,195			645,303
Other receivables		63,685			53,932
Total receivables		859,880			699,235
Inventories		985,659			1,069,863
Prepaid expenses and other current assets		95,444			113,580
Total current assets		3,230,407			2,819,591
Property, plant and equipment, net		787,980			738,925
Operating lease right-of-use assets		1,067,228			1,073,660
Deferred tax assets		48,858			49,088
Long-term investments		77,338			94,589
Goodwill		93,497			71,412
Other assets, net		89,712			45,678
Total non-current assets		2,164,613			2,073,352
TOTAL ASSETS	$	5,395,020		$	4,892,943
LIABILITIES AND EQUITY
Current liabilities:
Current installments of long-term borrowings	$	16,926		$	66,234
Short-term borrowings		13,701			5,789
Accounts payable		624,677			764,844
Operating lease liabilities		189,394			191,129
Accrued expenses		198,292			210,235
Total current liabilities		1,042,990			1,238,231
Long-term borrowings, excluding current installments		669,152			49,183
Long-term operating lease liabilities		977,327			966,011
Deferred tax liabilities		12,948			322
Other long-term liabilities		104,138			103,089
Total non-current liabilities		1,763,565			1,118,605
Total liabilities		2,806,555			2,356,836
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding		—			—
Class A common stock, $0.001 par value; 500,000 shares authorized;    131,276 and 131,071 shares issued and outstanding at March 31, 2020    and December 31, 2019, respectively		131			131
Class B common stock, $0.001 par value; 75,000 shares authorized;    22,408 issued and outstanding at March 31, 2020    and December 31, 2019		22			22
Additional paid-in capital		313,451			306,669
Accumulated other comprehensive loss		(52,819	)		(29,993	)
Retained earnings		2,086,937			2,037,836
Skechers U.S.A., Inc. equity		2,347,722			2,314,665
Non-controlling interests		240,743			221,442
Total stockholders' equity		2,588,465			2,536,107
TOTAL LIABILITIES AND EQUITY	$	5,395,020		$	4,892,943

See accompanying notes to unaudited condensed consolidated financial statements.

3

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended March 31,
	2020			2019
Sales	$	1,242,345		$	1,276,756
Cost of sales		694,677			686,247
Gross profit		547,668			590,509
Royalty income		5,248			5,201
		552,916			595,710
Operating expenses:
Selling		74,055			70,214
General and administrative		434,051			359,632
		508,106			429,846
Earnings from operations		44,810			165,864
Other income / (expense):
Interest income		2,307			3,142
Interest expense		(1,999	)		(1,277	)
Other, net		3,471			(4,986	)
Total other income / (expense)		3,779			(3,121	)
Earnings before income tax expense		48,589			162,743
Income tax expense		7,429			31,724
Net earnings		41,160			131,019
Net earnings / (loss) attributable to non-controlling interests		(7,941	)		22,261
Net earnings attributable to Skechers U.S.A., Inc.	$	49,101		$	108,758
Net earnings per share attributable to Skechers U.S.A., Inc.:
Basic	$	0.32		$	0.71
Diluted	$	0.32		$	0.71
Weighted average shares used in calculating net earnings per    share attributable to Skechers U.S.A., Inc.:
Basic		153,555			153,480
Diluted		154,652			154,134

See accompanying notes to unaudited condensed consolidated financial statements.

4

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2020			2019
Net earnings	$	41,160		$	131,019
Other comprehensive income, net of tax:
Loss (Gain) on foreign currency translation adjustment		(29,764	)		3,452
Comprehensive income		11,396			134,471
Comprehensive income (loss) attributable to non-     controlling interests		(14,879	)		23,747
Comprehensive income attributable to Skechers U.S.A., Inc.	$	26,275		$	110,724

See accompanying notes to unaudited condensed consolidated financial statements.

5

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

	SHARES						AMOUNT								ACCUMULATED
	CLASS A			CLASS B			CLASS A		CLASS B			ADDITIONAL			OTHER					SKECHERS			NON			TOTAL
	COMMON			COMMON			COMMON		COMMON			PAID-IN			COMPREHENSIVE			RETAINED		U.S.A., INC.			CONTROLLING			STOCKHOLDERS'
	STOCK			STOCK			STOCK		STOCK			CAPITAL			INCOME (LOSS)			EARNINGS		EQUITY			INTEREST			EQUITY
Balance at December 31, 2019		131,071			22,408		$	131	$	22		$	306,669		$	(29,993	)	$	2,037,836	$	2,314,665		$	221,442		$	2,536,107
Net earnings		—			—			—		—			—			—			49,101		49,101			(7,941	)		41,160
Foreign currency translation adjustment		—			—			—		—			—			(22,826	)		—		(22,826	)		(6,938	)		(29,764	)
Distribution to non-controlling interest of consolidated    entity		—			—			—		—			—			—			—		—			(14,865	)		(14,865	)
Non-controlling interest of acquired businesses		—			—			—		—			—			—			—		—			49,045			49,045
Stock compensation expense		—			—			—		—			12,441			—			—		12,441			—			12,441
Shares issued under the Incentive Award Plan		376			—			—		—			—			—			—		—			—			—
Shares redeemed for employee tax withholdings		(171	)		—			—		—			(5,659	)		—			—		(5,659	)		—			(5,659	)
Balance at March 31, 2020		131,276			22,408		$	131	$	22		$	313,451		$	(52,819	)	$	2,086,937	$	2,347,722		$	240,743		$	2,588,465
Balance at December 31, 2018		129,525			23,983		$	129	$	24		$	375,017		$	(31,488	)	$	1,691,276	$	2,034,958		$	154,317		$	2,189,275
Net earnings		—			—			—		—			—			—			108,758		108,758			22,261			131,019
Foreign currency translation adjustment		—			—			—		—			—			1,966			—		1,966			1,486			3,452
Contribution from non-controlling interest of consolidated    entity		—			—			—		—			—			—			—		—			7,565			7,565
Distribution to non-controlling interest of consolidated    entity		—			—			—		—			—			—			—		—			(1,014	)		(1,014	)
Purchase of non-controlling interest		—			—			—		—			(71,265	)		—			—		(71,265	)		(11,629	)		(82,894	)
Stock compensation expense		—			—			—		—			8,940			—			—		8,940			—			8,940
Shares issued under the Incentive Award Plan		378			—			—		—			—			—			—		—			—			—
Shares redeemed for employee tax withholdings		(170	)		—			—		—			(5,816	)		—			—		(5,816	)		—			(5,816	)
Conversion of Class B Common Stock into Class A    Common Stock		967			(967	)		1		(1	)		—			—			—		—			—			—
Repurchases of common stock		(458	)		—			—		—			(15,009	)		—			—		(15,009	)		—			(15,009	)
Balance at March 31, 2019		130,242			23,016		$	130	$	23		$	291,867		$	(29,522	)	$	1,800,034	$	2,062,532		$	172,986		$	2,235,518

See accompanying notes to unaudited condensed consolidated financial statements.

6

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net earnings	$	41,160		$	131,019
Adjustment to reconcile net earnings to net cash from operating activities:
Depreciation and amortization		39,559			27,421
Provision for bad debts and returns		26,277			9,665
Share based compensation		12,441			8,940
Deferred income taxes		(4,885	)		3,074
Net settlement gain		(13,877	)		—
Other items, net		—			304
Net foreign currency adjustments		6,513			4,422
(Increase) decrease in assets: