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Skechers USA Inc (NYSE:SKX)
Q1 2021 Earnings Call
Apr 22, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Skechers First Quarter 2021 Earnings Conference Call. [Operator Instructions] After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Skechers. Please go ahead.

Unidentified Speaker

Thank you everyone for joining us on Skechers conference call today. I will now read the safe harbor statement. Certain statements contained herein, including without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the Company or future results or events may constitute forward-looking statements that involve risks and uncertainties, specifically the COVID-19 pandemic has had and is currently having a significant impact on the Company's business, financial conditions, cash flow and results of operations. Such forward-looking statements with respect to the COVID-19 pandemic, include without limitation, the Company's plans in response to the pandemic.

At this time, there is significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic. The dynamic nature of these circumstances means that what is said on this call could change at any time and as a result, actual results could differ materially from those contemplated by such forward-looking statements. Additional forward-looking statements involve known and unknown risks, including but not limited to, global, national and local economic business and market conditions in general and specifically as they apply to the retail industry and the Company.

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. Users of forward-looking statements are encouraged to review the Company's filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities law for a description of all other significant risk factors that may affect the Company's business, financial conditions, cash flows and results of operations.

With that, I would like to turn the call over to Skechers' Chief Operating Officer, David Weinberg; and Chief Financial Officer, John Vandemore. David?

David Weinberg -- Chief Operating Officer

Thank you for joining us today for our first quarter conference call. I hope you, your colleagues and loved ones are staying safe and healthy. As the COVID-19 pandemic continues to be a global challenge, we remain dedicated to the safety of everyone in the entire Skechers organization and appreciate their ongoing efforts and resiliency during this difficult period. While many countries' restrictions are easing, our thoughts are with those regions facing another coronavirus wave. As is the case with most businesses, the pandemic continued to impact Skechers but the high demand for our comfort technology product resulted in a strong beginning to 2021 and it feels reminiscent of 2019.

In the first quarter, we achieved revenue growth of 15% over the same period last year, which resulted in our first quarterly sales of more than $1.4 billion. This was done while parts of the world remained closed due to the pandemic. The $1.43 billion first quarter sales were also an 11.9% increase over first quarter 2019, which was then a record for the period. Driving the record sales was 20.2% increase in our international business and an 8.5% increase in our domestic business. This double-digit growth drove international sales to 57.8% of total sales in the first quarter. Throughout the quarter, we focused on delivering our footwear and apparel to meet the needs of both our consumers and customers. Our sell-throughs across customer types and categories exceeded expectations in many markets and we were able to deliver double-digit growth.

Skechers' mission of delivering comfort, style and quality and innovation at a value resonated with consumers prior to the onset of the COVID-19 pandemic and the same is true now. Consumers are returning to a new normalcy, one that involves more walking, more comfort on the job and a casual lifestyle mindset. We are a natural choice for any demographic worldwide with comfort technology at our core. The record sales are a testament to the fact that consumers appreciate our product offerings, which we're seeing by the success across many divisions.

Our International Wholesale business grew 23.8% for the first quarter last year and 13% from 2019. The quarterly sales growth was driven by an increase of 174% in China, which was severely impacted by the pandemic in the prior year. However, even as compared to 2019, China grew 45.5%. The International Wholesale growth was partially offset by decreases in our subsidiary and distributor businesses. Subsidiary sales decreased 4.8% from 2020 but improved 4.2% from 2019. The first quarter 2021 decrease was due to temporary closures and reduced operating hours in Spain and Italy, and especially in the United Kingdom, where businesses were closed for the entire quarter. Where markets were open, sales were strong, including in Germany, India and Canada. Our distributor business was down 6.5% from last year, yet several markets experienced growth in the quarter, specifically Russia, Taiwan, Turkey and Ukraine. We believe we will continue to see improvements in our distributor business in the second quarter and the remainder of the year.

Sales in our Domestic Wholesale business decreased less than 1% in the first quarter compared to the same period in 2020 but improved 8.1% compared to the first quarter of 2019. We believe sales in our Domestic Wholesale business were negatively impacted by logistical challenges, which caused slower replenishment and product shipments to some accounts. Key sales drivers came from multiple categories with the largest gains in our Women's Sport, Kids, Work and Men's Performance. Additionally, the average selling price per pair increased 2.7%, reflecting the strength and appeal of new comfort products and technologies. Skechers direct-to-consumer business increased 18.1% over 2020 and 13.1% over 2019, despite the fact that domestic operating hours were reduced by approximately 15% during January and February, and 7% in March. In our international company-owned stores, we lost 37% of the days available to sell during the quarter. Our domestic direct-to-consumer sales increased 28.4% compared to the first quarter of 2020 and 18% compared to 2019. This improvement came from our domestic e-commerce channel, which grew by 143% and our brick and mortar stores, which grew by 13.6%. Our domestic direct-to-consumer average selling price per unit rose 10.9%, which speaks to the strength of our current product offering. While we expected our e-commerce business to continue to perform exceptionally well, we were pleased with the increased traffic and sales in our domestic retail stores, especially in March, which we believe improved as more people became comfortable shopping and we ramped up our marketing efforts.

We have now completed the update of our point-of-sale system, which further optimizes our domestic direct-to-consumer channels and will continue to improve our omnichannel capabilities. We are now focused on rolling out this same platform worldwide. Our e-commerce channel remains a meaningful growth opportunity as sales increase significantly across the globe. We plan to expand our e-commerce reach across Europe, beginning with a new site in Ireland and the revamp of our U.K. site this summer.

Our international direct-to-consumer business increased 1.9% over the first quarter of 2020 and 4.4% over 2019. The growth was largely attributable to our company-owned e-commerce sites and the strength of our sales in Korea, India and Thailand, partially offset by ongoing temporary store closures due to stay at home guidelines across many markets, most notably in the United Kingdom. While we are seeing some markets reopening this month, including England last week, other countries have extended or reinstated their lockdowns given the unpredictability of the coronavirus and its impact on many markets, we remain cautious about a return to normal traffic and sales in many international stores.

In the first quarter, we opened 12 company-owned Skechers stores, six of which are in international location, including our largest store in India. We have opened seven stores to-date in the second quarter, including our first in Antwerp. We closed 20 locations in the first quarter as we opted not to renew expiring leases, and we expect to close one additional store at the end of this month. An additional net 106 third-party Skechers stores opened in the first quarter, bringing our total store count at quarter end to 3,989. The stores that opened were across 16 countries with most located in China and India.

To support the open regions during the first quarter, we ramped up our marketing efforts to drive home our comfort message. This included former professional quarterback and lead NFL commentator, Tony Romo in our Max Cushioning commercial during the Super Bowl and NFL coach, Jon Gruden and sports analyst, Howie Long in new commercials for Skechers Arch Fit, as well as Brooke Burke featured in Arch Fit and Skechers apparel commercials during the quarter. Our new campaign went on television as well as digital platforms to support key initiatives for men, women and kids.

In the first quarter, we were awarded Company of the Year by leading industry publication, Footwear Plus, for the ninth time in 15 years. This was due to our efforts during the challenging 2020 year and our ability to deliver to consumers the comfort they wanted. We are pleased with our performance in the first quarter, I think this was a solid beginning, especially given the ongoing pandemic-related difficulties most recently impacting our international business, which now represents 58% of our total sales. While many markets continue to face challenges, we are seeing strong signs of recovery and remain focused on delivering our comfort technology and managing the flow of our inventory to fulfill demand where we are open and drive sales where possible.

Now, I'd like to turn the call over to John.

John Vandemore -- Chief Financial Officer

Thank you, David, and good afternoon, everyone. The Skechers brand performed exceptionally well this quarter, despite ongoing challenges posed by the pandemic, including continuing store closures and operating restrictions in many markets across the world. The quarter began as expected with the pandemic continuing to influence tepid consumer trends worldwide, especially as many markets reinstituted lockdowns. However, mid-quarter, we began seeing signs of consumer engagement and optimism domestically that we have not seen in over a year, that led to results in March that even exceeded our own internal expectations, reflecting high demand for the Skechers brand. Although we remain cautious given the nature of government responses to COVID-19 globally, we are optimistic that our first quarter results are indicative of the power of our brand as the world begins to recover from the pandemic.

Now, let's turn to our first quarter results, where you will note that due to the unusual nature of last year, we will occasionally compare to both 2020 and 2019, where we feel the added measure is beneficial to evaluating the performance of our business. Sales in the quarter achieved a new record, totaling $1.43 billion, an increase of $186.1 million or 15% from the prior year and an impressive 11.9% increase over the first quarter of 2019. On a constant currency basis, sales increased $145.9 million or 11.7%. International Wholesale sales increased 23.8% in the quarter compared with the first quarter of 2020 and 13.4% compared with the first quarter of 2019. Our joint ventures grew an impressive 120% in the quarter led by China, which grew 174% against prior year results, which contained the most severe impacts of the COVID-19 outbreak. As compared to the first quarter of 2019, China grew 45.5% driven by strong e-commerce performance.

Subsidiary sales declined slightly in the quarter by 4.8%, primarily as a result of continuing closures in Europe and Latin America. However, as compared to 2019, our subsidiary sales grew an impressive 4.2% despite the current year operational restrictions. As expected, our distributor business continued to face pandemic headwinds in the first quarter, decreasing 6.5% but saw a marked improvement as compared to the second half of 2020. Although we continue to expect this portion of our business to recover more slowly than the overall International Wholesale segment, we remain optimistic that we will ultimately see a full recovery of sales in this important channel. Domestic Wholesale sales decreased slightly in the quarter by less than 1%, primarily due to the unfavorable timing of shipments to customers, which we now expect to occur in the second quarter. Compared to the first quarter of 2019, sales increased 8.1%, which we believe is more reflective of the positive underlying trends we are seeing with the majority of our domestic wholesale partners, particularly based on sell-through we observed in the back half of the quarter.

Direct-to-consumer sales returned to growth in the quarter increasing 18.1%, the result of a 28.4% increase domestically and a 1.9% increase internationally. The results reflect a slight benefit from the pandemic store closures in the prior year but more importantly, also reflect a notable 143% increase in our domestic e-commerce business and a significant increase in store traffic and sales in March, a trend that has continued.

Gross profit was $679.6 million, up 24.1% or $131.9 million compared to the prior year. Gross margin was 47.6%, an increase of 350 basis points versus the prior year, primarily driven by increases in our average selling price across all segments as well as a favorable mix of online sales. Total operating expenses increased by $19.9 million or 3.9% to $528 million in the quarter. Selling expenses increased by $11.2 million or 15.2% to $85.3 million, which was flat as a percentage of sales versus last year. The dollar increase was primarily due to higher domestic digital demand creation spending as well as the reopening of certain markets internationally.

General and administrative expenses increased slightly by $8.6 million or 2% to $442.7 million, which was primarily the result of volume-driven expenses in warehouse and distribution for both our international and domestic e-commerce businesses. This was partially offset by lower retail labor costs. Earnings from operations was $157.7 million versus prior year earnings of $44.8 million. This represents an increase of 252% or $112.9 million. Operating margin was 11% compared with 3.6% a year ago and 13% in 2019, reflecting strong combination of top line performance and operating expense leverage despite ongoing pandemic-related challenges. Net earnings were $98.6 million or $0.63 per diluted share on 155.9 million diluted shares outstanding. This compares to prior-year net income of $49.1 million or $0.32 per diluted share on 154.7 million diluted shares outstanding. Our effective income tax rate for the quarter was 20.2% versus 15.3% in the same period last year. The increase was predominantly due to an unfavorable mix of earnings from higher tax jurisdictions.

And now turning to our balance sheet. We ended the quarter with $1.51 billion in cash, cash equivalents and investments, which was an increase of $148.2 million or 10.8% from March 31, 2020. Trade accounts receivable at quarter end were $798.8 million, an increase of $2.6 million from March 31, 2020. Total inventory was $1.07 billion, an increase of 8.3% or $81.8 million from March 31, 2020. The increase is largely attributable to higher inventories to support growth in China and government closures in Europe. Total debt, including both current and long-term portions, was $779.7 million at March 31, 2021 compared to $699.8 million at March 31, 2020.

Capital expenditures for the first quarter were $84.2 million, of which $42.9 million related to the expansion of our joint venture-owned domestic distribution center, $13.8 million related to investment in our new corporate offices in Southern California, $12.4 million related to investments in our direct-to-consumer technology and retail stores and $3.6 million related to our new distribution center in China. Our capital investments remained focused on supporting our strategic growth priorities, growing our direct-to-consumer relationships and business as well as expanding the presence of our brand internationally. For the remainder of 2021, we expect total capital expenditures to be between $200 million and $250 million.

Now turning to guidance. First, let me preface by saying that we remain in a dynamic situation, where conditions can change materially at any point in time. As a result, assessing the ongoing impact of the pandemic to our business is difficult. Incorporated into the following guidance is our best estimate of the influence of these factors on our expected results for 2021. However, if the situation deteriorates and closures continue longer than anticipated, our expected results may differ materially from this guidance. That being said, we are providing a perspective today for our second quarter and full year 2021 results, based upon current trends, backlogs and other indicators. We expect second quarter 2021 sales to be in the range of between $1.45 billion and $1.5 billion and net earnings per diluted share to be in the range of between $0.40 and $0.50. For fiscal year 2021, we expect sales to be in the range of between $5.8 billion and $5.9 billion and net earnings per diluted share to be in the range of between $1.80 and $2. We also anticipate that gross margins for the full year will be flat or up slightly compared to 2020 and that our effective tax rate for the year will be approximately 20%.

And now, I'll turn the call over to David for closing remarks.

David Weinberg -- Chief Operating Officer

Thank you, John. We achieved a new quarterly sales record over $1.4 billion due to the strong demand for our comfort technology footwear and markets where we are open. International, which is approximately 58% of our total sales was the biggest driver, but we saw strong improvements in our domestic business with increasing traffic in March and now in April. The achievement came despite ongoing pandemic-related issues. We drove sales through strong marketing campaigns across multiple platforms, continue to rollout our BOPIS and BOPAC initiative in the United States and plan for additional e-commerce sites in 2021. To further support our business in the coming years, we are in the process of enhancing our infrastructure with new distribution centers in Peru, the U.K. and Japan. In addition, our new 1.5 million square foot China distribution center remains on track for full implementation by mid-year.

Given today is Earth Day, I'd like to note that we are continuing to work on the expansion of our LEED Gold certified North American distribution center, which will bring our facility in Southern California to 2.6 million square feet in 2022. We are also completing construction on Phase 1 of our new LEED Gold certified office buildings and we are increasing efficiencies in our existing corporate office buildings, including the addition of solar panels. Although we remain cautious given the ongoing temporary closures in many countries, we are seeing the improved traffic that we experienced in March continue in April, where markets are open. The demand for our product is strong as consumers want familiarity, comfort, quality and value, all of which the Skechers brands delivers together with innovation and style.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Jay Sole with UBS. Please proceed with your question.

Jay Sole -- UBS -- Analyst

Great. Thank you so much. So my question is just first about the domestic comp, 25.7%. Can you give us a sense of what the contribution was from online versus stores and give us maybe a little bit more color about how the business trended from January to February and then into March?

David Weinberg -- Chief Operating Officer

Yeah, I would say in the early part of the quarter, January, probably through about mid-February, e-commerce continued to demonstrably outperform the business, traffic patterns were still somewhat depressed, both domestically and obviously, with those markets internationally, significantly. What we saw in March is, and really the last part of February-March as our marketing began to take hold and relaxation of guidelines to close stores and keep them restricted -- relaxed is just both channels, went north significantly. Obviously, we have a more significant store based in our current online offering, but both grew tremendously in the back half of the quarter, evidencing like we said, the very strong demand for the brand that we saw is out there. I would note, Jay, though, we also saw that demand in the sell-throughs for our Domestic Wholesale partner. So it was pretty broad-brush demand for the brand, evidencing itself in both segments.

Jay Sole -- UBS -- Analyst

Got it, OK. Thank you. Let me -- if I could ask you about the international distributor business. John, I think you mentioned that there was a pretty significant, I think, you called it a marked improvement in the quarter versus the second half of last year, do you expect the same type of improvement quarter-over-quarter in 2Q for that business? Can you just tell us about how you see that business getting to -- the timing of when it gets to full recovery?

John Vandemore -- Chief Financial Officer

Yeah, it depends on what you're -- if you're looking at it relative to 2020, I think you can expect to be -- to see a similar improvement that you saw in Q1, probably a bit better. As you start to look at Q2 in '20 where we started to experience some of the declines last year. If you look at it relative to 2019 as well, you're still going to see a challenge, which is kind of our high water reference point and what we're aiming for the business to get back to, but overall, yes, you'll see significant improvement going through Q2 to Q4 because we start to lap the effects of last year, which were pretty severe.

Jay Sole -- UBS -- Analyst

Okay, got it. And then, maybe one more for me, if I could. There is a really big increase in the retail segment gross margin and the international segment gross margin, it sounds like a lot of that was ASP maybe some mix. Can you talk about why the gross margin guidance for the year is only flat to up slightly? Is it that you see some of the ASP gains are sort of one-time in nature just because of the unusual environment was stimulus and whatnot or if you can just maybe talk about some of the puts and takes that are going into your gross margin forecast? That'd be super helpful.

John Vandemore -- Chief Financial Officer

Yeah, I mean the ASP experience, we don't expect to subside. I mean, the brand is selling well, our comfort technologies, that David referenced in his comments, are performing exceedingly well. We do expect, as we talk about, there are some input cost pressures materializing in the back half of the year plus that mix benefit gets a little less pronounced because it is this quarter, in particular, largely e-commerce influence as the rest of the retail business comes back into play, that has a slight downward pressure. Keep in mind though, we're generating more dollars overall, so it's definitely a good story at the end of the day. But most important to point out, that ASP success is a true reflection of the quality of the product and how well it's selling through, because again we see that in our stores, we see that in our partner doors and it is a reflection of people wanting the product and the technology that we're offering today.

David Weinberg -- Chief Operating Officer

Yeah, Jay, we enforce the fact that it's a mix issue. As distributors come back, obviously, they have a lower impact on gross margin. And when you talk about gross margin and ASPs, they're not all from the same frame, we can keep the same margins with higher ASPs and end up with higher margin dollars, which is our goal to begin with. So we anticipate that the margins will hold in there even with the increase, and lower margin businesses and the ASPs will stay higher, so we'll be a much more efficient company as we go through with this.

Operator

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Okay, great. Fantastic. Really nice quarter guys. And I wanted to ask about the ASP, just following up on Jay's question. It sounds like you expect the strong ASP to continue, but the aggregate mix of ASP for the business will change just as the various pieces of business come back. And am I hearing you correctly on that, I just want to make sure I've got a good understanding.

David Weinberg -- Chief Operating Officer

Yeah, absolutely.

Kimberly Greenberger -- Morgan Stanley -- Analyst

And so, I'm just trying to think about if there is any sort of supply demand imbalances out there that could be influencing ASP one way or the other and if you feel like you're in a good inventory position if -- or if there are any, let's say, supply issues that may be helping ASP at the moment that you would expect to unwind later in the year?

David Weinberg -- Chief Operating Officer

Well, we think our inventories are in great shape. As far as creating demand, it's not something we would do, we deliver at the prices we committed to, this was in the cards, to begin with, I think what it shows is, less markdown cadence and a stronger base for our higher priced items as this comfort technology that we've been developing and putting in multiple shoes is now coming to into its own. So we have less markdowns, we have higher ASPs in our own retail. We assume all around the world our wholesale partners will continue to take the benefit as well as they open up. There were probably some imbalances as we moved along, but we never raised prices or changed anything for it, that just was part of our mix, I think we actually handled the imbalances as well as anyone, we weren't significantly late, we delivered most on time, we were able to move things from countries that had closed down to countries that were operating, it's part of our core competencies. So I think logistically we came through this as well as we could anticipate and sort of spread the wealth to everybody we deliver to.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Fantastic. Great color. Thank you so much.

Operator

Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

James Duffy -- Stifel Nicolaus & Co. -- Analyst

Thank you. Hi, guys. Terrific quarter.

David Weinberg -- Chief Operating Officer

Thank you.

James Duffy -- Stifel Nicolaus & Co. -- Analyst

And thanks for the guidance. Well, the inventory looks like you left yourself in a good position to capitalize on improving demand should that materialize 2Q, 3Q and so forth. John, just looking at the guide, the second quarter and full-year guidance implies you'll be more than halfway to the full year earnings guide at the midpoint of the year, is there some significant incremental expense to flag in the second half of the year or is it just conservative assumptions on revenue and margin?

John Vandemore -- Chief Financial Officer

Well, like many, we derive our guidance based on a number of different scenarios we run. The reality is mix has a pretty big impact here, it really depends on what happens relative to, for example, the international retail market, so there is some latitude there. I would just note broadly, we are seeing a higher tax rate this year, which -- our job to incorporate because that's something that we feel is durable for the remainder of the year and we have had some exposure to FX, to the downside, which we saw this quarter. This quarter we lost probably about $0.05 on an FX charge. So we're incorporating all of that at once, but given the dynamics of the market, we felt, this is a prudent way to give a range you can rely on and then we'll obviously be working as hard as we can to get better than that. Given the significant unknowns on mix and influences there, it felt like a prudent path for us.

James Duffy -- Stifel Nicolaus & Co. -- Analyst

Got it. I'm glad you mentioned the tax rate, I was penciling like an 8% operating margin of that earnings number, but it seems like it's probably a higher tax rate and therefore, higher operating margin than that. The -- I wanted to ask, just kind of parsing out strength in the quarter, a number of different variables to consider, your advertising was notable and highly visible, that clearly drove traffic. Could you see that immediately turn on the business in the e-commerce as you started to air the ads for some of the campaigns like the Max Cushioning and so forth?

John Vandemore -- Chief Financial Officer

Yeah, I mean, it absolutely had an impact. I think quantifying it specifically is a little challenging. Our advertising was extraordinarily well-timed, it hit, as you were seeing, many markets relax restrictions on traffic for consumers and then it also about same time you saw this -- that they're around, I guess, a stimulus hit, but there's no doubt it had an impact and we saw it across the board, we saw it in e-com, we saw it in the stores, we saw it in our partner doors. It was tremendously effective and, as it was noted in the commentary, was focused on our comfort technology products, which are the ones that are really performing exceptionally well at that ASP level. So it was a great combination and a great success for us.

David Weinberg -- Chief Operating Officer

We should point out, it worked around the world. As markets opened and there was a great demand created just from the lockdown, our advertising we feel pushed it dramatically in our direction, which is why we performed so well in countries that had just opened up.

James Duffy -- Stifel Nicolaus & Co. -- Analyst

Great. And last one for me just on the advertising, can you speak about plans for timing of advertising across the remaining quarters of the year?

John Vandemore -- Chief Financial Officer

We don't anticipate anything out of the realm of normal on a relative basis, so I would encourage you to look at where we generally set in different times of the years on a percent of revenue base. Nothing outlandish anticipated there. And just a follow up on -- you didn't have one other thing to highlight on that EPS guide. As the mix shifts toward a market like China, there is a minority interest impact, Jim, that's one other thing to consider as you pare down from an operating earnings perspective down to EPS, more heavily tilted toward the market like that there is some minority interest impact that gets taken into consideration.

Operator

Our next question comes from the line of Omar Saad with Evercore ISI. Please proceed with your question.

Omar Saad -- Evercore ISI -- Analyst

Thanks. I'll add my congratulations at all -- as well, really exceptional quarter, guys. Two quick questions, number one, Europe, it's an important market for you guys, I've been hearing from lot of other companies that it's still pretty tough there, a lot of closures, I mean, obviously, you put up really impressive global numbers. Can you talk about Europe specifically, how much of it was or wasn't a drag in the quarter? And then, I have a follow up on China. Thanks.

David Weinberg -- Chief Operating Officer

Yeah. As we said in our prepared remarks, that was down slightly from last year and up from 2019. We thought it was a very strong performance in those countries that were open. So if you look through the country, they're obviously a dichotomy of those open, those closed and those that had second waves as they came through. I think it's true to say that in the times we were open, no matter where we were open, we sold very well, and I think because of how well we performed in the first openings in Europe last May, June and July, a lot of people felt they were short product going into the second closures, especially in the U.K. and more predominantly in Germany and places like that. So they accepted a lot, they want to come out of -- wanted to come out of disclosure, fully stocked, especially with our stuff because it performed so well, so that helped our wholesale business in Europe, which was outside to the number of stores that were closed. So -- and you talked about -- that's one of the things we take into account also when we did our guidance, because we filled up so dramatically in places that were closed on our wholesale business. The longer it takes to reopen, may have some kind of minor impact in the back half of the year, so the sooner they open, we certainly have upside to wherever we stand with performances that good and everybody who has our inventory is depending on it.

Omar Saad -- Evercore ISI -- Analyst

Gotcha. That's helpful color. Thank you. And then, quickly on China. I think it's -- it sounds like it's up 50% versus pre-COVID levels in the quarter, which kind of like puts you back on the prior trend. It seems like that you're getting a lot of pent-up demand there, is that a fair characterization or is it new customers coming to the brand? Can you tell where this really incredible numbers in China, where that -- the various sources of demand are, and how much -- how big of a market can China become for you guys? It seems like there is a lot of runway there. And then, are you seeing any impact from the boycotts of some other Western brands and therefore, around the Shenzhen issue? Thanks.

David Weinberg -- Chief Operating Officer

Well, we are always dependent on new customers and China does have 1.5 billion people and more and more come into the middle class or can afford the footwear as time goes by. So we think is -- well, we hate to say unlimited, but there is as much potential as there is anywhere in the world as we go to China. As far as the boycott, we haven't seen anything as yet, although we're obviously aware of it and we have posted our own statements online, we ask everybody to read them, rather than go into a political conference. As far as the conference call is concerned, China is a great marketplace for us and obviously, we don't want to do anything that would -- whether it's PR or political to anything to do with those boycott, plans or anything like that, so we try to keep as clear as we can and far away and just watch our own business.

John Vandemore -- Chief Financial Officer

I would add, Omar, the e-commerce business performance there has performed exceptionally well. Part of that is obviously the natural trend in China, the position online, but you have also seen as a result of the pandemic and even heavier influence on e-commerce success in the marketplace, and we definitely reap the benefit of that.

Operator

Our next question comes from the line of Gabriella Carbone with Deutsche Bank. Please proceed with your question.

Gabriella Carbone -- Deutsche Bank -- Analyst

Hi, thanks for taking my question, and congratulations on a great quarter. Just...

David Weinberg -- Chief Operating Officer

Thank you.

Gabriella Carbone -- Deutsche Bank -- Analyst

Bigger picture, how do you view the opportunity of the Domestic Wholesale channel, especially given the fact that a large competitor, hence pulled out of some major retailer? And then, if you can maybe touch on the logistic issues that you mentioned in 1Q and how that -- you see that playing out.

John Vandemore -- Chief Financial Officer

Yeah, I would first start off by saying we feel like we've earned our performance in Domestic Wholesale, the last two quarters of 2020 were very good, we are seeing very good underlying trends. We ran into a timing issue this quarter, we are very optimistic about the balance of the year, but that's, we think, largely earned by the strength of our product. We welcome all of our competitors to pull out of the wholesale market if they so choose, because we stand ready to serve those customers, many of them we work very closely with to support the brand. David mentioned, we work with them to support the price, especially on our comfort technology products because we believe that's a winning opportunity for everybody. So we remain optimistic, we're proud of what we've accomplished, especially because it's still a mixed bag of results out there, although we were very happy to see that majority of our customers performed very well as markets emerged and as retail businesses started to see better customer traffic channel trends.

Gabriella Carbone -- Deutsche Bank -- Analyst

Great, thanks for that. And just a quick follow up. Just I was wondering if you can dig into product a little bit more and how you're seeing trends evolve that's kind of moving to the recovery phase of the pandemic?

David Weinberg -- Chief Operating Officer

Well, we are into that comfort technology footwear, which I think fits very well and the product, it's across a broad range of product and product looks and certainly styling, but we're into comfort and style. So we have it everywhere and we constantly are creating new categories that we can compete it, so I think even now, as we go through it, people are into more comfort and we're a company that is dependable as far as delivering orders through difficult times. So I think we're seeing both, the styling, the product, the inventory, also, the sell-throughs as we go through. This created a quite a demand for the product, we actually could ship significantly more if we had brought it in early enough, but we try to sit back and let the market come to us and we know there is a high demand and we are turning our inventory, certainly on the wholesale level, very quickly, which means there is a high demand for the product and prices should hold up and we sit in a good place.

Gabriella Carbone -- Deutsche Bank -- Analyst

Perfect, thank you so much.

Operator

Our next question comes from the line of Laurent Vasilescu with BNP Paribas. Please proceed with your question.

Laurent Vasilescu -- BNP Paribas -- Analyst

Good afternoon. Thanks for taking my questions. John, I think in the press release, it talks about Domestic Wholesale business decreasing 0.9% due to timing of shipments, just quick -- two quick points of clarification, was that a shipment delay from 4Q to 1Q or 1Q to 2Q? And could you possibly parse out the size of that shipment?

John Vandemore -- Chief Financial Officer

I -- So I knew somebody would ask, I didn't know it would be you, Laurent. It was a shift from first quarter to second quarter, it was -- we had a variety of logistical challenges we had to face that David referenced. Our team did a great job by the way, net net overcoming most of those. This was just a timing situation. I don't want to get into a full quantification but we would have seen a result similar to, if not slightly better, than what we saw in the last half of 2020. Definitely would have been up and we expect that to carry into Q2.

Laurent Vasilescu -- BNP Paribas -- Analyst

That's great to hear. John, you have approximately $125 billion of liquidity on you balance sheet, your share buyback program expired in February, should we anticipate another buyback program and how do we think about the right amount of liquidity on the balance sheet going forward?

John Vandemore -- Chief Financial Officer

Yeah, I would say, at the moment it's still an uncertain environment, I think our first priority on any excess cash, it would be to probably repay the facility that we drew at the beginning of the pandemic, we're becoming more and more confident that we're at least past what could be or could have been a significant liquidity event. From there, our number one priority is deploying cash back into the business, where we can and we obviously, by virtue of the investments we're making, see a lot of opportunity for that. After that, we discuss it regularly with the Board to let them make an evaluation. I don't want to get into guessing on how they will perceive things, but I would say we feel very good about the investments we're making in the business, those are the highest ROI opportunities and if there is more of those, we'll put the cash there and then we'll look at other opportunities over time.

Operator

Our next question comes from the line of Susan Anderson with B. Riley. Please proceed with your question.

Susan Anderson -- B. Riley Financial, Inc. -- Analyst

Yeah. Good evening. Thanks for taking my question. Sorry, I was on mute there. Nice job on the quarter and managing through the pandemic. I guess, just a follow up on the traffic front, maybe if you could talk a little bit about the improvement from December up until now, since we don't really have year-over-year data, and then I'm just curious, have you seen that strength continue into April?

John Vandemore -- Chief Financial Officer

Yeah, I mean what it -- really -- compared to 2020, it's a little bit tough with some of the closures, if you go worldwide. But I would say, what you saw -- what we saw was January and February, as we mentioned, pretty similar to what we saw in the fourth quarter of 2020 and then the market turned, things got better, perceptions, we definitely got better consumer intent, got better traffic, I mean, everything got better at once. So I think, the comparison point we give is that comparable store sales did it $180 million[Phonetic] and then some over the mid -- from the mid-quarter on and those have thus far sustained and even improved slightly again for us as we saw markets like the U.K. come back online because many international markets unexpectedly from our view in the quarter stayed closed throughout. All of which is to say, again, it's a continuing trend we see, we're certainly doing what we can to foster more traffic at a consumer level, but I think the most encouraging aspect for us is they're coming to the Skechers brand, be it in our own stores, online, and our partners, we're seeing the sell-through continue to manifest at very, very good levels.

Susan Anderson -- B. Riley Financial, Inc. -- Analyst

Great. That sounds good. And then, I guess just on the wholesale front, is there any color you can provide just on, are you seeing any thoughts around how the wholesalers are thinking about the back half this year, I guess, particularly on the domestic front?

John Vandemore -- Chief Financial Officer

I think all we can say is, we're seeing good demand for Skechers. I don't know if that holds true beyond that. We're working with most -- every account. And as we speak, getting ready for the -- our back-to-school shipments and their orders for fall-winter '21. Most of what we hear, at least relative to our product, is encouraging. We've had very good performance as we said over the back half of this quarter and expect it to continue, as evidenced again in the strong sell-through and pricing, I mean, I think that's a really good thing that we're seeing is, it's holding up despite some higher AURs, and that's encouraging. And, I think, as David mentioned, we've done a very good job of delivering in difficult circumstances there. The logistical issues impacting the market, we're not immune to, but I think we've done a very good job of navigating through those and that's led us to see, I think, a higher receptivity to wanting to depend on Skechers to deliver to their consumers.

David Weinberg -- Chief Operating Officer

I'd like to add that our backlogs also indicate that there is a lot of dependency on us for the back half of the year, certainly on a comparable basis. And I'm -- there are still some customers that are more leery not knowing what to do with themselves as this goes through and how it will last and how market conditions will change and we don't know what the retail will look like as we go through, but we do know we'll be participating to a very large degree and our backlogs indicate that we will be a premier player in the back half should nothing changed dramatically from now to then.

Operator

Our next question comes from the line of Sam Poser with Williams Trading. Please proceed with your question.

Sam Poser -- Williams Trading LLC -- Analyst

Thanks for taking my questions. Can you give us some idea of the size or the penetration of Arch Fit and Max Cushioning within -- like within the product mix outside of -- within the overall product mix right now?

David Weinberg -- Chief Operating Officer

I don't even know how to relate to that, I mean, we -- it goes into so many products to add it on. I think the best way to put that is, we see ourselves as the comfort technology company and all our big selling products have comfort and technology in them, whether it's Arch Fit or Max Cushioning or -- and Hyperburst. We have something to offer in almost all our shoes, so it's fair to say, it's the biggest piece of our line, it's not that it's an item that fits in a shoe and that shoe is what carries the game. It's very broad-based in multiple styles and multiple categories and all fits with the comfort technology that exists within the brand as a whole.

Sam Poser -- Williams Trading LLC -- Analyst

Thanks. I've got two more, one, can you give us some idea of just -- of how big the e-commerce business is these days and how you're thinking about that for the full year? And two, you mentioned it, I think once in the call so far, but what is the -- what do you believe the impact of stimulus was because your business kicked in right as the checks came at and at the same time that you're advertising kicked in. So can you give us some view of how you believe stimulus in the U.S. is impacting the overall business right now?

David Weinberg -- Chief Operating Officer

Yeah. The stimulus effect is tough to pick out, Sam, I understand the nature of the question. But as you pointed out, we really had three major factors hit at once. What we believe is that the marketing was probably the most powerful because it really drove awareness and we -- and it -- on the products that we also then saw pull-through, obviously, the relaxed restrictions in many markets had effects, that was a little bit more sensitive, geographically. In some areas, it was a big effect, in others, the market had been open for a while, so it really depends on the geography there, so overall, probably wasn't as pronounced. And then, the stimulus checks came in at about the same time, but we've tried to look at it in detail, it's just very difficult to tease out that number overall. What I would say is on the e-commerce question, if we take into consideration the totality of our commerce business, so domestically, internationally owned markets, China, it's definitely in a mid-teens number this quarter, which is definitely an overall positive trend in the trajectory of our e-commerce business.

Operator

Our next question comes from the line of John Kernan with Cowen and Company. Please proceed with your question.

John Kernan -- Cowen and Company -- Analyst

Yeah. Excellent, thanks for taking my question guys, and congrats on managing the business through the pandemic and growth you're seeing into this year.

David Weinberg -- Chief Operating Officer

Thanks.

John Kernan -- Cowen and Company -- Analyst

Just off to e-commerce up another triple-digit number, at least domestically, can you tell us -- can you give us some color on where this business is from a total top-line perspective? The demand for the brand digitally is clearly there, in terms of the economics of the business, how much more can you scale your own digital business within the DTC platform?

John Vandemore -- Chief Financial Officer

Yeah, I mean if we're looking just at the domestic side of the business, e-com was close to 20% of that business. Honestly, it's hard to put a top on it, because I think what we will see on a continuing basis is that digital-only transaction volume will continue to grow. And just to be clear, this quarter eye-popping numbers again, the team did a great job, but it was still not comparing against the pandemic-infused online buying of last year. We actually suspect that next quarter, the domestic number will be a bit more challenged, because you're going to be comparing against a window where the only opportunity to buy product was online. So this is kind of the last quarter before that, very difficult comparison but overall, we absolutely believe the business can continue to grow. It will be a more important component of our total direct-to-consumer business in the omnichannel capabilities, that David mentioned, and referenced in the call, because that's where we see consumers going. They want a seamless ability to transact with the company online, maybe at a mobile device, a desktop device in the store and to trade between those and that's why the investments we've made in the new POS platform, in the new technology platform and our forthcoming relaunch of loyalty are all going to be materially beneficial long term, but it's going to take some time for that maturation to occur. I would also just say, I believe that we're getting better as an organization, fine-tuning our capabilities in digital marketing, which will help and continue to help the business, and that's an advantage we saw this quarter as well. And then, more broadly, stepping back, I'd say, we're very excited about the opportunity to begin launching in countries in which we're not yet penetrated from a company-owned online presence. And so, as we roll out a new platform and technologies across the globe, we're super excited about what that will mean then for our brand in those markets and our ability to begin offering direct consumer online capabilities as well.

John Kernan -- Cowen and Company -- Analyst

Got it. That's helpful. And then, maybe I would shift to the margin profile of the business, your gross margin has been consistently moving higher really over the last five years and there hasn't been a lot of variance to it, particularly on the downside and it's been on a structural uptrend. It sounds like ASP are moving higher, your DTC business domestically is doing very well, just curious, where do you think gross margins can go over time, given the consumers responding to innovation you're putting in the product, ASPs are moving higher, your e-commerce business is getting better? Within that double-digit operating margin that you've targeted over time, where do you think gross margin goes, it's been on a structural uptrend for a while now.

John Vandemore -- Chief Financial Officer

Yeah, and that's by design, right. Our strategy is to continue to grow this business internationally, which generally carries accretive gross margins and to grow it in the direct-to-consumer channels. I mean, I think if you ever take the last year or so out of the mix because you have so many different factors coming into play at a gross margin level, what we see underlying though is that continuing trend toward positivism. We have some input cost pressures arising this year, which we've talked about, the transportation costs going up, some raw material pressure, so I would think about some of the pricing is keeping up with that. But overall, we think that, that mix continues to benefit us over the long haul. I don't think you're going to see a 350 point bp jumps every quarter, because that's a heavily influenced by some mix dynamics. But I think improving incrementally every year is definitely part of the plan. The only thing I would say, that could hold us back on that is that we also grow in some of the lower margin businesses like David mentioned the distributor business, great operating margin for us, but it's a lower gross margin, still business we want to have, very profitable for us. But if that grows at a higher clip, it will simply dilute that mix benefit, but that's still means we're making more money as a company, which is ultimately our goal.

Operator

Our final question comes from the line of Brian McNamara with Berenberg Capital Markets. Please proceed with your question.

Brian McNamara -- Berenberg Capital Markets -- Analyst

Hey guys, congrats on the strong results, and thanks for taking the questions. So we have seen two pretty material changes from you guys in the last week or so in terms of disclosures. With the proxy statement released last week, you had noteworthy changes in the compensation structure and this is the first full year guidance that I can recall you offering. With clear momentum in the business, I'm just curious what drove these changes?

John Vandemore -- Chief Financial Officer

It's just a natural evolution, how we run the business. We're continuing to grow the brand, that still remains our number one priority but we always look for opportunities to make the business better, first in a product level then at marketing them throughout the back of house. It's not the only improvement, it's probably just the ones you guys see, but we've made tremendous investments throughout our information technology, infrastructure, we continue to advance markets across the globe. So there is a lot going on in that bay and I think those two, in particular, are just the natural evolution of us being in a position to be able to manage our business with better visibility in some respects, but also aligning with some market practices and others, but I wouldn't want you to take away that that's the only improvement, just the ones you see are it, because even in the last couple of years, we've made tremendous strides in many areas of the business, which I'll pitch in, say, I don't think we get enough credit for because we're not great at just chest beating but, even David mentioned, on this Earth Day, we have one of the largest LEED certified distribution centers, we think in California, at least, if not the country, and we're adding on to that with the same level environmental sensitivity. We're doing that here, we don't talk about that stuff a lot, but I think those -- I think there are improvements in the way we run the business more aligned with kind of the ESG attention that's out there, that don't often get appreciated. So just I'd say one more step in improving the business and continuing to grow into really the number 3 footwear provider in the world and maybe even north of that.

Brian McNamara -- Berenberg Capital Markets -- Analyst

Great, thanks. And then, just one quick one on India. How did India perform in the quarter relative, I guess, to your expectations, and how is that recovery taking hold? Obviously, it was one of the more impacted markets from the pandemic last year.

David Weinberg -- Chief Operating Officer

Yeah, it performed quite well through the end of the quarter, it certainly met our expectations. They were on target pre-pandemic levels but this new shutdown, especially for Delhi and Mumbai. While it hasn't closed down the whole country and we continue to do business there, it obviously will have impact until it's done as far as that particular business is concerned.

John Vandemore -- Chief Financial Officer

Yeah, just for color, we were excited to potentially try to make a visit as our first international market to hit post-pandemic. And heading to India was in our short-term plans, but obviously that's been derailed. But it doesn't in any way diminish our optimism for the country long term, we still think it has tremendous prospects for our brand, in particular, and we're excited about it. We just wish them the best in this phase of their dealing with the coronavirus pandemic.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Unidentified Speaker

David Weinberg -- Chief Operating Officer

John Vandemore -- Chief Financial Officer

Jay Sole -- UBS -- Analyst

Kimberly Greenberger -- Morgan Stanley -- Analyst

James Duffy -- Stifel Nicolaus & Co. -- Analyst

Omar Saad -- Evercore ISI -- Analyst

Gabriella Carbone -- Deutsche Bank -- Analyst

Laurent Vasilescu -- BNP Paribas -- Analyst

Susan Anderson -- B. Riley Financial, Inc. -- Analyst

Sam Poser -- Williams Trading LLC -- Analyst

John Kernan -- Cowen and Company -- Analyst

Brian McNamara -- Berenberg Capital Markets -- Analyst

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