Skechers U.s.a. (SKX) Q2 2024 Earnings Call Transcript
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Skechers U.s.a. (NYSE: SKX)
Q2 2024 Earnings Call
Jul 25, 2024, 4:30 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to Skechers' second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
I would now like to turn the conference over to Skechers. Thank you. You may begin.
Jarred Dahlerbruch -- Senior Product Manager
Hey, everyone. Thanks for joining Skechers' second quarter 2024 earnings conference call. My name is Jarred Dahlerbruch. I'm a senior product manager on the product development team here at Skechers, and I've been with the company since starting as an intern in 2017.
My favorite style is the Snoop One OG sneaker from our Snoop Dogg collab. Also joining us on the call are Skechers' chief operating officer, David Weinberg; and chief financial officer, John Vandemore. Before we begin, I would like to remind everyone of the company's safe harbor statement. Certain statements made on today's call contain forward-looking statements based on current expectations, including, without limitation, statements addressing the beliefs, plans, objectives, estimates, and expectations of the company and its future results and certain events.
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These forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause actual results to differ materially from such statements. There can be no assurance that the actual future results, performance or achieve expressed or implied by any of our forward-looking statements will occur. Please refer to the company's reports filed with the SEC, including its annual report on Form 10-K and quarterly reports on Form 10-Q. For more information on these risks and uncertainties that may affect the company's business, financial conditions, cash flows, and results of operations.
With that, I would like to turn the call over to Skechers' chief operating officer, David Weinberg.
David Weinberg -- Chief Operating Officer
Good afternoon, and thank you for joining us today on our second quarter 2024 conference call. The second quarter marked another sales record for the period. Sales were $2.16 billion, an increase of 7.2% or $145 million compared to last year. On a constant-currency basis, sales were $2.19 billion, an increase of 8.7%.
Gross margins were 54.9%, a 220-basis-point increase. We're also pleased to announce a new $1 billion share repurchase plan, which replaces and significantly enhances our existing program. The record second-quarter sales are particularly noteworthy given supply chain disruptions impacting shipments to Europe, a difficult and price-driven shopping event in China, and foreign currency headwinds. Strong global demand for our comfort and innovative products drove our record sales, resulting in growth across all regions and segments.
The infusion of comfort technologies such as SKECHERS Hands Free Slip-Ins within our diverse product offering from the Snoop Dog collection and SKECHERS GO GOLF to SKECHERS GO Walk and Kids resonated with consumers of all ages and interests. We have recently expanded this comfort and convenience feature to additional product categories. SKECHERS Hands Free Slip-Ins is just one of our many comfort innovations, which also includes SKECHERS Arch Fit, SKECHERS Air-Cooled Memory Foam, HYPER BURST, and many more, all of which are part of our being the comfort technology company. We have successfully partnered with industry technology leaders like Goodyear to further enhance our product offering.
We also announced a new partnership with John Deere. The footwear incorporates the iconic John Deere branding with SKECHERS Comfort technologies, the perfect blend of innovation and rugged style. In our performance category, we collaborated with our elite athletes and product testers to elevate the fit and technologies across the division. No matter where you train or compete regardless of your skill level, you can trust that you are equipped with comfort that performs.
Recently, athletes competed on global stages wearing SKECHERS football boots, including Golden Boot winner, Harry Kane for England, and Oleksandr Zinchenko for Ukraine, both at the Euros, and Bobby Reid for Jamaica at Copa America. This weekend, we will continue to see athletes competing. They include SKECHERS ambassador and Philadelphia 76ers star, Joel Embiid, as well as Canadian golfer Brooke Henderson, British golfer Matt Fitzpatrick, and Spanish racewalker, Diego Garcia. American beach volleyball duo, Andy Benesh and Miles Partain, will be playing in Skechers-branded uniforms.
The Malaysian Olympic team will also be wearing SKECHERS footwear during the opening ceremony and for daily use during the games. With football rolling out globally this month, our roster of athletes continues to grow, including recently signed West Ham rising star Mohammed Kudus, Bundesliga striker Ragar Ache, and Chilean defender Emiliano Amor. And with basketball rolling out globally next month, we are announcing the signing of WNBA and Los Angeles Sparks' rising star forward, Rickea Jackson. We see many more opportunities ahead as we bring SKECHERS basketball around the world.
As the Comfort technology company, we prioritize delivering the ultimate in innovation, comfort, and style so that every pair looks and feels exceptional, whether you're working in an office, restaurant, hospital or playing golf, basketball, or pickleball, SKECHERS will be your unwavering companion and comfort. We engage with diverse consumers through a comprehensive multi-platform 360-degree marketing approach. In the second quarter, this included the first SKECHERS football commercial starring Harry Kane, SKECHERS Uno campaigns with actress Ashley Park and German singer Vanessa Mai. SKECHERS apparel campaigns for men and women and SKECHERS Hands Free Slip-Ins with global as well as regional talent.
This quarter, we introduced a new SKECHERS football campaign with our team of elite athletes as well as spots featuring Harry with guest stars Snoop Dogg and retired English footballer Jamie Redknapp. As we did for football, we have created dedicated social channels for Skechers basketball in preparation for the global launch in August, and we are in the process of creating fresh campaigns with Joel and Rickea, as well as new campaigns with New York Knicks Julius Randle and L.A. Clippers Terance Mann. As we continue to drive brand awareness and purchase intent and increase our product offering globally, we remain focused on building efficiencies within our business to scale for profitable growth.
Looking at our second quarter results. Sales increased 7.2% to a new second-quarter record of $2.16 billion. On a constant-currency basis, sales increased 8.7% to $2.19 billion. Domestic sales increased 7.7%, International sales increased 6.9%, and represented 60% of our total sales.
By region, Americas increased 7.2%, EMEA 14%, and APAC 2.2%. The quarterly growth came despite several macro headwinds. In the United States, traffic was down. And in China, economic challenges weakened consumer demand across multiple industries, especially over the 6/18 holiday period.
In India, we navigated ongoing import regulations, which led to constrained inventory. We believe India is an extremely important market, and we are actively addressing the regulatory hurdles by producing more product locally and leveraging our new 660,000-square-foot distribution center named Mumbai. In addition, despite extremely strong demand in Europe, sales were shifted to the second half of the year by increased transit time. This created a short-term imbalance between on-hand inventory, which was down about 40%, and in-transit inventory, which was up over 150%.
Our wholesale sales increased 5.5%, driven by domestic growth of 14%, which was the result of double-digit increases in our men's and kids' footwear as well as growth in women's and improvements in volume and ASP. International wholesale was flat compared to last year, primarily due to the aforementioned challenges in China and India. Direct-to-consumer increased 9.2%, resulting in sales of more than $1 billion for the quarter, a first for the company. This growth was primarily due to an increase of 15% internationally with improvements in most markets for both our brick-and-mortar and e-commerce stores.
Domestic direct-to-consumer sales improved 1.4% as we faced a particularly strong comp with growth of 29% in the second quarter of 2023 and the reported softer retail store traffic across the country. Direct-to-consumer continues to be a key segment of our business and an indicator of positive consumer appetite for our brand. We ended the quarter with 5,267 Skechers-branded stores worldwide, of which 1,702 are company-owned locations, including 576 in the United States. We opened 71 company-owned stores in the quarter, include 27 in China, 15 big-box locations in the United States, six in Vietnam, and five in Germany.
We closed 40 stores in the quarter. Although in the period, 104 third-party stores opened, including 56 in China, eight in Indonesia, seven in the Philippines, and three in India. This brings our third-party store count at quarter-end to 3,565. In the third quarter to date, we have opened 13 company-owned stores, including three big-box stores in the United States and three in Mexico.
We expect to open an additional 140 to 150 company-owned worldwide over the remainder of 2024. Investments across our direct-to-consumer business, product offering, demand creation, and infrastructure remain priorities, including the expansion of our distribution center in Panama which serves multiple countries in Latin America and is now operational, and our new company-owned DC in Colombia, which opened this month. We continue to focus on making our products available where consumers want to shop be it in our retail and e-commerce stores or at one of our many wholesale and franchise partner locations around the world. We're looking forward to the second half of 2024 and as we continue to scale our business worldwide and reach our goal of $10 billion in annual sales in 2026.
And now, I would like to turn the call over to John for more details on our financial results.
John M. Vandemore -- Chief Financial Officer
Thank you, David, and good afternoon, everyone. Skechers delivered record second-quarter sales of $2.16 billion, growing 7.2% year over year, driven by continued strength in our international direct-to-consumer business and significant improvement in our domestic wholesale business. While strong, these results were below expectations, due in part to severe foreign currency exchange headwinds in the quarter. On a constant-currency basis, sales were more in line with our expectations, growing 8.7% to $2.19 billion.
Earnings per share in the quarter of $0.91 -- $0.97 on a constant-currency basis exceeded our expectations, reflecting continued strong gross margins. Despite navigating these and other headwinds from the supply chain, regulatory obstacles in India, and a lackluster 6/18 holiday in China, we are encouraged by the continued positive response to our comfort technologies from consumers. As we will discuss later, we have improved visibility into the second half of the year and are adjusting up our full-year guidance as a result. Turning to direct-to-consumer.
Sales grew 9.2% year over year and exceeded $1 billion for the quarter, a first in our company's history. Growth was driven by continued strength internationally, which rose 15%, including double-digit growth in both our physical retail and e-commerce channels, and followed impressive prior-year growth of 30%. Domestic direct-to-consumer sales grew 1.4% as we faced a difficult comparison to last year's 29% increase. Consistent with broader market trends, we observed lighter foot traffic in our brick-and-mortar locations in the quarter but marked improvements in our e-commerce channel.
Global demand for Skechers products remains strong. and consumers are purchasing across a broad range of price points, which speaks to the enduring appeal of our focus on delivering style, comfort, and quality at a reasonable price. The Skechers brand continues to build momentum in the market and the expansion of our global direct-to-consumer footprint remains a key priority for driving long-term growth. In wholesale, sales increased 5.5% year over year to $1.13 billion.
Domestic wholesale sales grew 14% or $56 million versus the prior year reflecting strong consumer demand for our product and robust order flow, a trend we see continuing in the second half of the year. Our international wholesale sales were essentially flat as pockets of strength in many markets were weighed down by softer results in select markets like India and China. In addition, supply chain disruptions from the Red Sea crisis negatively impacted our business in Europe with deliveries shifting into the second half of 2024. Now, turning to our regional sales.
In the Americas, sales for the second quarter increased 7.2% year over year to $1.1 billion, driven by domestic wholesale, which accounted for over half the growth. The Americas direct-to-consumer business grew across all markets, including double-digit growth outside of the United States. While the macro environment remains challenging with pressures on discretionary spending, Skechers' commitment to delivering high-quality products at reasonable prices is resonating with consumers. In EMEA, sales increased 14% year over year to $492.5 million, driven by strong performance in our direct-to-consumer business with double-digit growth across channels.
Wholesale sales were softer than anticipated due to the aforementioned supply chain disruptions. We anticipate improvements in these delays over the course of the year, but we are continuing to closely monitor the situation, and we'll provide further updates as warranted. In Asia Pacific, sales increased 2.2% versus the prior year to $564.2 million. In China, sales grew 3.4% year over year on a constant-currency basis.
We believe that China's economic recovery will remain challenged in the near term, but we are confident in the long-term opportunity for Skechers, given the strong consumer perception and demand for our brand in the market. In India, sales were negatively impacted by the implementation of new regulatory standards and other unfavorable market conditions. More recently, we have seen positive developments around the regulatory environment, and our efforts are focused on prudently navigating the near term while continuing to prepare for the long-term opportunity we believe this market possesses. Gross margin was 54.9%, up 220 basis points compared to the prior year.
The improvement was primarily driven by lower freight costs and a favorable mix of direct-to-consumer volumes. Operating expenses increased 340 basis points as a percentage of sales year over year to 45.3%. Selling expenses as a percentage of sales increased 160 basis points versus last year to 10.9%. As mentioned last quarter, this spending was largely focused on brand-building investments and heightening awareness of our innovative comfort technologies in new categories.
General and administrative expenses increased 180 basis points as a percentage of sales to 34.4%, primarily due to higher rent depreciation and labor to support growth in our direct-to-consumer segment and compensation-related costs, partially offset by cost efficiencies realized in our distribution centers. Earnings from operations were $206.5 million, a decrease of 5.1% compared to the prior year, and operating margin for the quarter was 9.6% compared to 10.8% last year primarily due to investments in brand building and global expansion. Our effective tax rate for the second quarter was 19.7% compared to 17.7% in the prior year. Earnings per share were $0.91 per diluted share, a 7.1% decrease compared to the prior year on 154.2 million weighted average diluted shares outstanding.
On a constant-currency basis, earnings per share were essentially flat at $0.97 per diluted share. And now turning to our balance sheet items. Inventory was $1.51 billion, an increase of 1.9% or $28.5 million compared to the prior year. However, as David mentioned, supply chain delays created a short-term imbalance between on-hand inventory down 18%, and in-transit inventory, which was up nearly 100%.
Overall, the composition of our inventories are healthy, and we believe this imbalance will be remedied over the course of the next quarter. Accounts receivable at quarter-end were $1.03 billion, an increase of $87 million compared to the prior year, reflecting higher wholesale sales. We ended the quarter with $1.55 billion in cash, cash equivalents, and investments and maintained liquidity of over $2.3 billion when including our undrawn revolving credit facility. Capital expenditures for the quarter were $112.5 million, of which $47.9 million related to investments in new store openings and direct-to-consumer technologies, $37.4 million related to the expansion of our distribution infrastructure, and $12.4 million related to the construction of our new corporate offices.
Our capital investments are focused on supporting our strategic priorities, which include growing our direct-to-consumer segment and expanding our brand trends globally. During the second quarter, we repurchased approximately 879,000 shares of our Class A common stock at a cost of $60 million. And today, we are announcing a new $1 billion three-year share repurchase authorization, which replaces our existing program. We continue to deploy our capital consistent with our stated philosophy while maintaining a durable balance sheet and ample liquidity.
Now, turning to guidance. For the full year 2024, we expect sales in the range of $8.875 billion to $8.975 billion. and earnings per diluted share in the range of $4.08 to $4.18, representing annual growth of 12% and 18%, respectively, at the midpoint. For the third quarter, we expect sales in the range of $2.3 billion to $2.35 billion and earnings per diluted share in the range of $1.10 to $1.15.
Our effective tax rate for the year is expected to be between 19% and 20%, and minority interest is expected to grow in line with total sales. Capital expenditures are anticipated to be between $325 million and $375 million for the year. We remain committed to achieving $10 billion sales by 2026 and delivering long-term sustainable and profitable growth. We thank you all for your time today.
We look forward to updating you on our third-quarter financial results, which we expect to release on Thursday, October 24. With that, I will now turn the call over to David for closing remarks.
David Weinberg -- Chief Operating Officer
Thank you, John. Despite the recent challenges, we achieved a new second-quarter sales record with growth in both our wholesale and direct-to-consumer business across the globe. This reflects the strong and broad-based acceptance of our products and our commitment to delivering the best in comfort, innovation, style, and quality at a reasonable price. As we navigate the challenges ahead, including the transit delays due to the Suez Canal closures and the regulatory changes in India, we see numerous opportunities to expand our business and are extremely encouraged by the demand for our brand.
We are excited about the ongoing launch of Skechers Football and the global launch of Skechers Basketball, recognizing that consumers want to shopper Sketchers, how, where, and when they want, we remain committed to growing our direct-to-consumer channel while also focusing on increasing our important relationships with our third-party customers. Going into the third quarter, we are tracking stronger than last year and believe the second half will be above our initial expectations. As always, we are grateful for the contributions of the entire Skechers organization and our valuable partners as we deliver profitable growth this year and into the future. Now, I would like to turn the call over to the operator for questions.
Questions & Answers:
Operator
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator instructions] One moment, please, while we poll for questions. Our first question comes from Jay Sole with UBS.
Please proceed with your question.
Jay Sole -- Analyst
I want to ask about the guidance. It sounds like FX and supply chain bit headwinds in the quarter impacted sales and earnings maybe relative to what you thought, but yet you're raising the sales guidance and the EPS guidance. Can you just explain and dive into a little bit the sources of the raise in the guidance? What's causing you to raise the sales guidance? And specifically, what's causing you to raise the EPS guidance given it sounds like these headwinds are still continuing?
John M. Vandemore -- Chief Financial Officer
Well, hello, Jay. I would say the No. 1 thing is the better visibility we have into the back half or particularly on the wholesale side of the business and drilling down a bit from there on the domestic wholesale side where we see really strong order flow I couple that with the ramifications of what we've seen on the supply chain side, delaying deliveries to our distribution function in Europe still represent very good orders that are flowing into the back half of the year. So, that's augmenting the strength we've already had.
We continue to see very good DTC performance internationally, like a lot of others, we did see some traffic declines domestically, although our e-commerce platform performed nicely in the quarter. So, taken all together, quite frankly, we simply have better visibility now. We've got a very nice order book built for domestic and international wholesale. We're mindful of the challenges that are out there, some of which may persist to one degree or another in the back half, but we believe we've adequately weighted that in the range of outcomes we could expect.
Jay Sole -- Analyst
Got it. So, I mean, I guess just to follow up on that, John, you're saying that whether headwinds coming from FX or supply chain, sort of that's not real -- you're not really assuming those things alleviate in the back half. I mean, you're kind of assuming that there's some macro issues that are out there that persist, but yet you still feel confident raising the guidance given the visibility of in the order booking given the acceptance you're seeing from the consumer for the product assortment, broadly speaking?
John M. Vandemore -- Chief Financial Officer
Well, we wouldn't raise the guidance unless we were confident in our ability to achieve it. I do think some of the macroeconomic headwinds we've seen will persist to one degree another. And we have those adequately captured, we believe, in our budget. I'd say the one outlier is foreign currency.
It was particularly acute during the second quarter and is already turned around, but that did not save us in the quarter. If you strip that out, as we mentioned, we would have been within our guidance range. That was kind of the straw that broke the camel's back on achieving our prior guidance, but the underlying consumer demand is still there. And that's what's evidenced in the order book in the back half of the year.
And again, the continuation of what we've seen on the strength of DTC internationally.
Jay Sole -- Analyst
Fantastic. OK. Thank you so much.
John M. Vandemore -- Chief Financial Officer
Sure.
Operator
Our next question comes from Laurent Vasilescu with BNP. Please proceed with your question.
Laurent Vasilescu -- Analyst
Good afternoon. Thank you very much for taking my question. I wanted to ask about the comments around U.S. DTC around footwear foot traffic, but then e-commerce being strong, there's a lot of concerns out there around just the overall environment over the summer and the footwear retail landscape.
Maybe David, John, if you can guide us on comment about what you're thinking see with the consumer? Is it weakening? Or is it just kind of a blip and then we can kind of see reacceleration for the third quarter for back-to-school?
John M. Vandemore -- Chief Financial Officer
Well, I admit it was a bit of an odd quarter. We did see some of the traffic slowdown in our brick-and-mortar stores. That definitely had an effect. At the same time, though, our e-commerce platform did really well in the quarter.
I think it's also important to recognize, we're getting back into a position vis-a-vis our wholesale customers where they are better equipped with the right type of inventory. So, I think when you think about the broader U.S. market, clearly, there's abundant strength at the consumer. The last thing I'd note, which we mentioned in our comments is we had an incredibly strong prior year, nearly 30% up on -- and so just maintaining that growth, if you look at it on some of your favorite two-year stack basis, it is still an incredible two-year growth rate.
So, where we go from here, I think, is going to be largely determined by what we see in the back-to-school window and then holiday. I would characterize our expectations as modest at this juncture. We're not overweighting an expectation of domestic reacceleration. But we also think there's plenty of consumer demand out there as is evidenced by what we're seeing in e-comm and in the wholesale order book.
Laurent Vasilescu -- Analyst
OK. Very helpful. And then can you talk about the shift? Like is it fair to assume a $50 million shift between 2Q and 3Q? Thank you very much.
John M. Vandemore -- Chief Financial Officer
Well, it's a fair question. I will say it's a little bit challenging to answer only because, I mean, this has been an effect felt over the course of time. So, it wasn't like one ship missed a window, right? It's tough for us to quantify, but I think you can assume vis-a-vis our guidance for Q3 in particular, and just the known aspect of what's been impacting supply chain, particularly that Asia to European route is that a material amount of orders moved into the second half of the year simply because they couldn't get the distribution and time to make the quarter. And keep in mind, there's always a little bit of that as we straddle Q2 and Q3, depending upon when shipments go.
What I would say is absolutely concrete is the demand we're feeling for the product. As I said, it's evidenced in the order books globally. And so, we feel very good about finalizing out those orders and the normalization of the supply chain that we expect is going to occur over the next quarter or two.
Laurent Vasilescu -- Analyst
Very helpful, John. And I think last quarter, I think to my good friend, posers question, you've mentioned gross margins could be -- I know you don't guide gross margin, but they can be 100 to 150 bps. Is that still the right way to think about it? And if so, how do we think about 3Q gross margins?
John M. Vandemore -- Chief Financial Officer
Well, I would say -- I mean, this quarter was a little bit more than we anticipated. We picked up more of a benefit from freight and mix than we had anticipated. As we had said previously, we expect the benefit to get smaller over the course of the year. It did a little bit.
But this is even a bit higher I would say we don't expect a lot more out of the balance of the year, but for mix related, although we are watching freight rates. We'll have to keep in mind that as we progress throughout the year. Some -- there's been some rate impact, obviously, from the Red Sea crisis. We have to balance that with the contractual rates that we're achieving, and so we'll monitor that.
But when you put all that into the model, ultimately, I would tell you that we don't expect as much lift over the back half of the year as we saw over the front half of the year. though that is consistent, I think, with what we had previously mentioned.
Laurent Vasilescu -- Analyst
Very helpful. Best of luck. Thank you.
Operator
Our next question is from Jim Duffy with Stifel. Please proceed with your question.
Peter McGoldrick -- Stifel Financial Corp. -- Analyst
Hi. This is Peter McGoldrick on for Jim. First, I wanted to ask about the BIS regulations in India. You mentioned some local production and distribution.
What's the magnitude of the local supply capacity relative to demand? And how are you planning for the progression of the regulatory environment sort of bridging the gap, the timing to bridge the gap between near-term impacts and the long-term opportunity in that market?
John M. Vandemore -- Chief Financial Officer
The first thing I'd say is there was a noticeable impact from the regulatory environment in India this quarter. That had a significant effect on our -- in particular, our Asia Pac sales. So, we definitely felt that and the attendant uncertainty in the quarter. The good news is we continue to build local production.
I won't give a percentage, but suffice it to say it's one of our primary areas of focus from a supply chain perspective, and it's getting better and better. It's simply today, insufficient to accommodate our total demand. We have seen some positive trends in the market with regards to certification processes, both of domestic and international manufacturing. I would expect over the course of the year, things continue to get better.
But it's -- that's a market that's a little bit tough to call from a timing perspective on when things are going to change. But overall, we continue to be optimistic, both about the back half of the year. But ultimately, that we will be able to a company significantly develop what's needed locally, but then complement that with international manufacturing and maybe even someday look toward India as an export production market for us. So, it had an impact, a big impact in Q2.
We believe that will get significantly better over the back half of the year. And again, I can't stress enough, we have definitely seen some positive trends of late, and that has been encouraging as well.
Peter McGoldrick -- Stifel Financial Corp. -- Analyst
All right. Thanks. Then I'd like to follow up on China. Revenue increased 3% despite the challenges noted on the 6/18 period.
Can you talk about the trends outside of the key holiday periods and any consumer insights that might influence plans for the rest of the year and your plans for 11/11? And should we be looking for growth in the second half out of China?
John M. Vandemore -- Chief Financial Officer
We're definitely expecting growth in the second half. And I would argue that the first half of this quarter actually was pretty encouraging. It's also important to note that they faced a really significant foreign currency headwind in this quarter. With, I think, constant-currency sales were double the growth rate of what we saw on a realized currency basis.
6/18 was definitely not nearly as strong as we've come to expect over time. It's hard to read that through to the balance of the year because 6/18 is such a unique event, and it's very promotional. As David mentioned, we saw a lot more price-driven activity on 6/18 this year. And so, that's simply compelled a lot less growth overall than we would have liked to have seen.
As we also said, we continue to think China is on the road to recovery. We expect a better second half of the year than what we've seen thus far. But we are watching things carefully. Double 11 will certainly be a big event in the context of how that market is recovering.
Again, I think the most encouraging aspect of what we've seen there is continued brand resonance and I think outperformance relative to some other international brands, which I think speaks to the PL Skechers in the market, which we expect to continue to ride for the long term.
Peter McGoldrick -- Stifel Financial Corp. -- Analyst
Very helpful. Thank you.
Operator
Our next question comes from John Kernan with TD Cowen. Please proceed with your question.
John Kernan -- TD Cowen -- Analyst
Excellent. Thanks. Good afternoon, John and David. Hope all is well out in Manhattan Beach.
Maybe unpack the guidance increase for the back half of the year a little bit more. Is there anything specifically from a channel or a geographical perspective that you have clear line of sight that's going to accelerate from where we were in Q2? It sounds like international DTC you've got good reads on and globally in wholesale. But just a little more color there would be helpful.
John M. Vandemore -- Chief Financial Officer
I think the best characterization we can give is continued strength from DTC, we're going to pick up the benefit of the timing issue from the Suez Canal crisis in Europe on the wholesale side as well. And then the domestic wholesale order book is very strong. I'd say those are probably going to be the lead factors for the back half of the year growth. I think also just the absence of some of the headwinds that we saw this quarter, particularly around some of the regulatory issues in India, the foreign currency.
I think that probably makes up for most of the growth. But I would also say, we've contemplated some of the other issues. We feel like we weighted them appropriately. We don't expect it to be purely smooth sailing from here, but I do think the unique combination of events this quarter made it a bit more challenging than anyone had anticipated going in.
And that's part of the reason why our initial kind of non-constant-currency sales were below where we thought they would be.
David Weinberg -- Chief Operating Officer
You know, I think it's fair to point out at this point that the shifts from June and July and the shift from December and January that we talk about every year are just more extreme in this particular case, simply because the biggest part of our shipments for the most part for domestic and domestic wholesale and European wholesale is the end of June and the beginning of July. And while Johnson, it's very difficult to see what went early, what went late. We're getting a better flow even though it takes a longer time to get there from Asia into Europe, so you can pick up June to July, as in December to January, we commented this year, while it doesn't guarantee the whole quarter, it's a great place to start, and we see demand picking up in a number of those places. And also, on the U.S.
side, just to reiterate what John said because I think it's very important, given increase in our direct-to-consumer business last year to hold that while we have a 14% increase in domestic wholesale and have increasing demand in a difficult time. Just shows the strength of the consumer has shifted from just one to the other and picked up some new consumers. Some go direct-to-consumer. Some go to their favorite wholesale partners that we have.
So, the overall business continues. And when you think about it, we pick up a wholesale sale in direct in wholesale in the U.S. So, there are more unit growth with the 14% in wholesale than there would have been in direct-to-consumer. So, that shows more demand just going to a different place.
So, I think both things line up very well for us, which is a significant piece of the increase in the guidance into the third quarter.
John Kernan -- TD Cowen -- Analyst
That's really helpful. And just maybe a quick follow-up on the supply chain costs and some of the timing issues. It looks like spot freight rates from an ocean perspective, have skyrocketed the last couple of months. You don't buy on -- do your contracts on spot, but how do we think about a different freight cost environment as we get into maybe Q4 and 2025? Do you see this as headwind?
John M. Vandemore -- Chief Financial Officer
Well, John, I think you first point out a very important factor, which is we don't expect to be feeling the effects of some of the higher spot rates until Q3 and probably more acutely in Q4 simply because of the time it takes to turn the inventory. Also, we're not buying, as you noted, everything is spot. There certainly are opportunities and needs we have to go into the spot market. So, our weighted average container rate is well below where the spot sits.
There are some other factors at play that we think will help offset some of that. But at the end of the day, until we see a culmination of that increase and quite frankly, an improvement overall in both the flow of goods, as David mentioned, but also in the rates which we expect is forthcoming. It's tough to call the final outcome other than right now, we do believe we've incorporated that into our guidance. It's one of the reasons why in bonds to Laurent's question, we were cautious about gross margin improvement from here.
We believe it will be relatively consistent improvement or consistent to last year. And that's why because some of that freight will come into play.
John Kernan -- TD Cowen -- Analyst
Understood. Thanks. And then maybe just one follow-up on the customer acquisition. Can you talk to the cohorts you are hiring some of the growth in the newer categories you've launched recently and how they're performing?
David Weinberg -- Chief Operating Officer
Sorry, say that again. I missed it.
John Kernan -- TD Cowen -- Analyst
Can you talk to customer acquisition and some of the cohorts you're acquiring with some of the newer product launches?
David Weinberg -- Chief Operating Officer
It's hard to tell. You know, our biggest push right now really is not moving out to the consumer, and that's on our performance athletic. And we're just going to launch our first football soccer in Europe and are moving to a more commercial sign of basketball. I think what's happening is that our features and our comfort are expanding the base of our existing customers.
And we're acquiring from other brands, just along our normal mix. We're still looking forward to achieving significantly higher acquisition as we get into more performance athletics, but we're at the very beginning of that.
John Kernan -- TD Cowen -- Analyst
Understood. Thanks.
Operator
Our next question comes from Alex Straton with Morgan Stanley. Please proceed with your question.
Alex Straton -- Morgan Stanley -- Analyst
Perfect. Thanks a lot for taking the question. I just wanted to focus on international wholesale Obviously, it slowed a little bit quarter over quarter, but it seems like from your commentary, some of that's just temporary from issues like the Suez Canal. But then you're also not as positive on China.
It sounds like as you were maybe three months ago on a near-term basis. So, can you just talk a little bit about how we should think about the shape of the back half, what type of growth you're expecting there?
John M. Vandemore -- Chief Financial Officer
So, yeah, I would say I think Q2 was a bit distinct in some of the impacts we felt, particularly on the international wholesale side of things. We mentioned Europe. We mentioned India. And those were they had an outsized impact on our results versus our original expectations.
I would still characterize our view on China as a net positive. Certainly, we expect growth in the year. And as we've said about China over the last couple of years, we've been somewhat surprised at the rather consistent improvement on abated we had seen. We know it's a market and recovery.
We know there are some macro challenges. So, again, I don't know that this outcome this quarter is particularly unanticipated in the grand view, but obviously, we didn't pick the timing, right? And that's why you saw that, but I would also note, again, there's a big foreign currency adjustment on the Chinese sales. They would have been double the growth, which was more in line with where we had seen recent quarter-over-quarter kind of improvement. So, again, I would characterize China certainly as a market we have continued optimism for.
We do expect there will be bumps in the road. This is one of them, but it doesn't diminish in any way our appetite to continue to invest in the market and the opportunity we think that market presents.
Alex Straton -- Morgan Stanley -- Analyst
Great. Maybe one quick follow-up just on selling expenses. I know they grew quite a bit this quarter. I think about 25%.
How should we think about that into the back half? I know you had a lot of demand creation expense in the quarter. Should that start falling off? Or what are the puts and takes there?
John M. Vandemore -- Chief Financial Officer
We'll continue to invest over the balance of the year, but the level of increases were not -- we do not expect will be similar. And that will continue to be the case kind of in the next quarter and in the next quarter. And then coupled with some of the timing-related issues we just talked about, it certainly was a more severe point of deleverage on the quarter than we had originally expected. We believe some of that will get made up over the back half of the year now that we've seen some of those sales move around and more strength and visibility into that back half growth that we've talked about.
Alex Straton -- Morgan Stanley -- Analyst
Great. Good luck, guys. Thank you.
Operator
Our next question comes from Rick Patel with Raymond James. Please proceed with your question.
Rick Patel -- Analyst
Thank you. Good afternoon. I was hoping you can dig further into your expectations for wholesale for the year. So, I believe in the past, you've alluded to global wholesale being able to grow in the high single-digit range.
Do you still see this as a reasonable outcome, just given the strength you have on the domestic side? And then just as a follow-up, how far out is your line of sight for the wholesale order book as you think about domestic versus international?
John M. Vandemore -- Chief Financial Officer
So, I definitely think that expectation for the full-year results for global wholesale is accurate and probably, in all honesty, based on what we see at the moment, probably more likely to be at the low end of the range. But definitely, continue to see good opportunity on the global wholesale side of things. From an order book perspective, we feel really good about what we see. I think the only factors we need to keep our eye on is timing as kind of be doubled this quarter in Europe in particular.
But overall, I would say conditions are improving. As David mentioned, the flow of goods is becoming more reliable and more predictable, which always helps. So, again, we would not have raised the guidance. We would not be speaking particularly about the strength we see if we hadn't the benefit of some very strong order book activity, and that's certainly the case.
Rick Patel -- Analyst
And can you also talk about sourcing? Maybe remind us how much exposure you have to China. And just given the headlines everyone is seeing about potential tariffs and whether they may or may not increase down the road. Just how we should think about mitigation strategies that you may be working on right now to deal with that in the future.
John M. Vandemore -- Chief Financial Officer
Yeah. There's not really been a fundamental change to our overall sourcing footprint, which we've commonly described as kind of being -- depending on the time period somewhere in the 40-ish percent range for China, 40% range in Vietnam, and then the balance kind of spread across a lot of other countries. But that that can ebb and flow depending upon what we're making when. I would also point out within that, obviously, we have a pretty significant business in China.
So, there's an element of what gets manufactured in China that serves the local market quite well. I would also note that we continue to look for opportunities to diversify our production. The biggest challenge there is, quite frankly, the rate of growth we're seeing in our unit volumes. So, we have to run just to keep things static.
But as a result, we're seeing really good trajectory, as we mentioned, in India. Indonesia, some other markets, Turkey, Mexico. So, again, it's something we'll continue to work on. I think in response to broad hypotheticals about tariffs and what may come, it's really difficult to react.
I think the one thing that that we've learned is you can't really react to hypotheticals, but you need to be very quick to react to actual results. And so, we'll be poised to react should we need to, although I would note again, it's going to be limited by that footprint. And I'd say the footprint of the footwear industry and apparel industry as a whole. I also would note that -- I mean, if there is such a thing as a tariff impact somewhere down the road from whomever sends to leadership in the United States, that's going to be a marketwide issue.
That's not going to particularly impact just one company. And so, our anticipation is you're going to have to see quite a bit of adjustment across the industry, not just with one brand or another.
Rick Patel -- Analyst
Thanks very much.
Operator
Our next question comes from Jesalyn Wong with Evercore. Please proceed with your question.
Jesalyn Wong -- Evercore ISI -- Analyst
Hi. Thanks for taking the question. Just a bit digging into the supply chain disruption to Europe. How is the flow of products already kind of coming in through in the third quarter? And if so, do we expect international wholesale to see a big pickup on the growth there? And are we -- is there any risk of congestion leading to additional cost in the third quarter -- fourth quarter from that? And then just on China.
I think you mentioned ex-China, it was up 7% in the quarter. Any early reads into trend for July and back half, do we think this high single-digit number holds ex FX into the second half? Thank you.
John M. Vandemore -- Chief Financial Officer
On the supply chain, I think the best answer I can give you is an illustrative data point on inventories. And we mentioned this in our script, our on-hand inventory levels in Europe at the end of June were down 40%. Our in-transit inventories were up over 150%. So, it gives you a flavor of just how much got delayed into the quarter.
We do -- we are seeing that flow improve a lot of that in transit is quite frankly, already landed or is in the process of landing that will get processed through. And it is, again, one of the reasons why we're confident enough in the bookings to be able to raise the guidance. That will clearly manifest on the international wholesale side, particularly in Europe. Insofar as China is concerned, I don't want to get down to kind of country-level guidance.
But I would say from the get-go this year, we expected growth we continue to see growth. We do know that there will be hiccups given the recovering nature of that market -- on a constant-currency basis, the growth was while not what we had come to expect or hope for, it was a solid high single-digit number. Whether or not that continues over the balance of the year is what we have to see. Nothing from a read perspective we can give you in July thus far given how early it is, plus just the nature of that market and how it tends to recover after these big selling events.
But again, our expectation continues to be for growth in the year. We are positive on the long-term opportunity in the market. And I think we're going to continue to work both the product that is obviously resonating across the globe in that market as well as tactics specific to the market, which have been paying off, and we would expect will in the future as well.
Jesalyn Wong -- Evercore ISI -- Analyst
Got it. Thank you.
Operator
Our next question comes from Will Gaertner with Wells Fargo. Please proceed with your question.
Will Gaertner -- Wells Fargo Securities -- Analyst
Hey, guys, thanks for taking my question here. Just curious, digging into China a little bit more. Can you just talk a little bit about how much of the China inventory is China for China versus imported to the U.S. Can you give us a sense of that?
John M. Vandemore -- Chief Financial Officer
Well, it's not a static number. It's probably the biggest challenge to do that. But I mean, obviously, with about 40%, 45% of our production coming from that market. And a mid-teens percent of our overall sales coming from that market.
You can see it's no small quantum of goods. It's never that precise, though because for production efficiency purposes, we're not always going to run a product in the market that's made for the market. Sometimes that's not the most efficient thing to do. But I would consider to be a meaningful component of the overall production in China is for China.
Will Gaertner -- Wells Fargo Securities -- Analyst
Got it. And on ASPs, it looked like we saw some deceleration they turned negative this quarter. Just curious if you have any color there, both on the wholesale side and the DTC side.
John M. Vandemore -- Chief Financial Officer
Yeah. I mean, nothing really outlandish. I think we saw small movements. I think more than anything, quite frankly, that's probably product mix associated, but certainly on the domestic side of things.
On the international side of things, there's definitely some of the FX impact gets bled through on the ASPs. We don't adjust those for constant currency. On the direct-to-consumer side of things, there's small effects from mix plus we continue to roll out more and more products with our SKECHERS Hands-Free Slip-Ins technology as well as other comfort technologies. And so, as those become more prevalent, just the life cycle of the product, they get included on certain promotions a little bit more than they would have been in the past.
So, that gives a little bit of has a little bit of an effect on ASPs. But overall, I would say, generally speaking, they were pretty consistent.
Will Gaertner -- Wells Fargo Securities -- Analyst
Got it. And just maybe one last one for me. On the DTC. So, you said that you saw some traffic slowdown in brick-and-mortar, but a pickup in e-com.
Can you maybe just frame out why you think that happened, what the delta was between the 2? And why you think there was slow on traffic versus in brick-and-mortar versus e-commerce?
John M. Vandemore -- Chief Financial Officer
Well, I don't know that I have the answer to that in all honesty. I would say it was pretty consistent with the broader industry trend that we saw reported beginning in really late May and continuing on into June. I would say what we saw was pretty consistent with what the industry saw. On the e-comm side, I mean, I think that's probably mostly a testament to having the product people want available and our ability to fulfill quickly.
And clearly, a consumer can get that store as well. But if they're not in the practice or not going to stores, the e-com solution is a great fallback, and having the right product, right marketing available to drive that, I think, was the difference. I would also just note, again, last year, our comps on the domestic direct-to-consumer side of things were fantastic. And our e-commerce comps were actually trailing a bit because of prior years.
So, there's some of it also that is just the comparison point is, is a bit different for each at this juncture. It's also fair to say that where people decide to shop is not only determined by our own stores and where we sell Skechers. People may go to different department stores or different malls or different parts to buy other things or other things that are being promoted and by footwear on the side for their family always searching for Skechers. So, it depends on whether more people shop online to inclement weather, where it is and regionally and what's on promotion, what they're shopping for, or what they're doing for entertainment.
So, they'll go and shop in different places at different times for various different reasons, not all pertaining to the way we promote or where our shoes are offered specifically. So, that's why we're constantly saying that we want to be where our consumer prefers to shop, whether it's for Skechers or not. And we promote all three knowing we capture that consumer somewhere along the line.
Will Gaertner -- Wells Fargo Securities -- Analyst
Got it. Thank you.
Operator
Our next question comes from Krisztina Katai with Deutsche Bank. Please proceed with your question.
Krisztina Katai -- Deutsche Bank -- Analyst
Hi. Good afternoon. Thanks for taking the question. I wanted to ask about EMEA, up 14%.
It continues to do really well. Can you maybe unpack what you're seeing in the market for underlying demand? Have you seen any changes in consumer buying patterns at all? Just maybe comment on the exit trends that you saw in the region and if there's anything that we should expect for sort of performance between the third quarter and the fourth quarter.
John M. Vandemore -- Chief Financial Officer
You know, the strength came out of DTC. I mean, the DTC numbers out of EMEA, in particular, quite frankly, continued to surprise us to the upside. The product's resonating. We continue to build into strength on our retail presence there.
E-commerce also was an advantage in that marketplace, which, as you recall, is really something we only began last year and have, I think, gotten better and better at it. So, that really came down to consumer demand. And I think that's why we also saw really good sell-through trends. We do expect that to continue.
That is a consistent trend we've seen from the beginning of the year through today. And so, we're pretty confident that that will continue despite all the challenges that people have talked about the last two or three years, the EMEA direct-to-consumer businesses continue to thrive.
Krisztina Katai -- Deutsche Bank -- Analyst
Got it. That's really helpful.
John M. Vandemore -- Chief Financial Officer
Sometimes, it's a matter of timing as well. When things slow down in Europe and then pass through our distribution center, you have to realize that wholesale, it passes through basically two distribution centers. It goes from hours to theirs and it's a lag. So, sometimes it happens when the opening after the pandemic, our direct-to-consumer outlets, both online and stores, we have more current inventory slightly faster.
So, you see the pickup in direct-to-consumer. And as it goes passes through, just like we're seeing here now, there's a leveling out of direct-to-consumer as the inventory and our newer product catches up with the wholesale side as well. So, we feel confident in the demand in both areas, but there's timing of availability of new inventory changes, especially as you get into a new season when there's so many supply chain disruptions along the way.
Krisztina Katai -- Deutsche Bank -- Analyst
That's great. Thank you for that. I wanted to follow up also on domestic trends. Just maybe if you have any sense on how back-to-school is performing? And just how would you characterize the domestic promotional environment? Thank you.
John M. Vandemore -- Chief Financial Officer
I would characterize the promotional environment is largely the same as what we've seen in the last couple of quarters. Nothing jumps out to us as indicating a significant change now or in the near future. I think it's pretty early to tell on back-to-school. We're only seeing the initial glances at it.
So, I don't know if there's really a read we can give that's meaningful at this juncture.
Operator
Our next question comes from Chris Nardone with Bank of America. Please proceed with your question.
Chris Nardone -- Bank of America Merrill Lynch -- Analyst
Thanks, guys. Good afternoon. So, regarding your U.S. direct-to-consumer business, can you clarify whether you've changed your expectations for the back half of the year relative to your thoughts last quarter? I'm just trying to gauge whether your improved sales guidance is solely due to the better-than-expected order book trends.
And then regarding product, if you can just elaborate a little bit more on what categories are outperforming and whether you're still seeing a broader trade-up within your portfolio to your comfort technology products?
John M. Vandemore -- Chief Financial Officer
Yeah. Relative to domestic DTC, we had held back our view on the back half of the year in our earlier guidance. So, I would say from this point. We really haven't changed it markedly, but we had always, I think, been conservative our view on the domestic DTC front going in particular, what significant comps we were up against.
But more nicely to answer your question, you should construe that the vast majority of the elevation in our expectations for the years coming from the wholesale side domestically and the order book there. Relative to product, it's really not a division or a gender only because we're seeing growth across a lot of those. I would say it is, as we've spoken about the last, really, year and a half, two years, maybe even longer, it's the benefit of the Comfort technologies, and they are continuing to lead consumers to trade up within our portfolio. But that's clearly continuing to resonate both Skechers Hands Free Slip-Ins, which is our newest but also many of the others, Arch Fit, Max Cushioning, our HYPER BUST technology, the traditional wide fit that we offer.
All of those are combining to very much translate at the consumer level to increase conversion because they know with those technologies, they're going to get more comfortable shoes than they can otherwise obtain in the market. So, we are continuing to see that trend hold true. But our expectations were and continue to be, I would say, fairly modest on domestic DTC for the back half of the year.
Chris Nardone -- Bank of America Merrill Lynch -- Analyst
Thank you.
Operator
Our next question is from Tom Nikic with Wedbush Securities. Please proceed with your question.
Tom Nikic -- Analyst
Hey. Thanks for taking my question. I wanted to ask about SG&A. Is there anything from a timing perspective that we should think about Q3 versus Q4? Is there any lumpiness in marketing or anything like that as we work through our models?
John M. Vandemore -- Chief Financial Officer
I knew I couldn't get off of calling somebody asking about G&A. The only thing I point out -- I appreciate that, Tom. We had mentioned previously that we were consciously overinvesting in Q2. I think you can take it as that -- it doesn't mean we're not investing, but I think the investment relative to the growth in sales, we expect will be much more in line.
I would say, absent that, no, nothing really stands out. But that should mean to you that we'll continue to invest in new stores. We have new distribution coming online and we're going to continue to put money into marketing. I will note, though, you did the line in our prepared remarks that we did see improved efficiency on the distribution side of things, which was good to see because that's a reflection of a lot of work over the last years given some of the challenges that we've had with supply chain.
So, that was actually a nice bright spot as well. But I would generally say, you can expect continued investment on the marketing side, but not at the year-over-year increase that we did this quarter. This quarter was a focal point for us, and we do believe that will pay off kind of going forward.
Tom Nikic -- Analyst
Understood. And if I can follow up with one more. On U.S. wholesale, have you found that the -- at the consumer level that the cetacean excitement around the slip-in products and the new technologies are as robust as what you had seen in DTC previously?
John M. Vandemore -- Chief Financial Officer
Yes, yes. I think some of that, both to be clear, is somewhat reflective of the timing through which wholesale accounts have taken up the technology. What we see is when they order the technology, when they order what we're bringing to market new, they see incredible response for those technologies. And I'd say very, very commensurate with what we've seen in our DTC.
Tom Nikic -- Analyst
Great. Thanks very much, John and David, and best of luck the rest of the year.
Operator
We have reached the end of the question-and-answer session. This concludes today's conference. [Operator signoff]
Duration: 0 minutes
Call participants:
Jarred Dahlerbruch -- Senior Product Manager
David Weinberg -- Chief Operating Officer
John M. Vandemore -- Chief Financial Officer
Jay Sole -- Analyst
John Vandemore -- Chief Financial Officer
Laurent Vasilescu -- Analyst
Peter McGoldrick -- Stifel Financial Corp. -- Analyst
John Kernan -- TD Cowen -- Analyst
Alex Straton -- Morgan Stanley -- Analyst
Rick Patel -- Analyst
Jesalyn Wong -- Evercore ISI -- Analyst
Will Gaertner -- Wells Fargo Securities -- Analyst
Krisztina Katai -- Deutsche Bank -- Analyst
Chris Nardone -- Bank of America Merrill Lynch -- Analyst
Tom Nikic -- Analyst
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