Skechers USA reported operating earnings vaulted 96.9 percent in the fourth quarter on a 27.0 revenue gain.
Fourth Quarter Highlights
- Record sales of $970.6 million, an increase of 27.0 percent
- Earnings from operations of $55.7 million, an increase of 96.9 percent
- GAAP diluted loss per share of $0.43 due to a $0.64 one-time tax expense attributable to the Tax Cuts & Jobs Act, adjusted diluted earnings per share of $0.21
- International wholesale sales increased 40.2 percent; total international wholesale and retail sales combined represented 52.6 percent of total sales
- Domestic wholesale sales increased 11.6 percent
- Company-owned global retail sales increased 25.8 percent, with a comparable same store sales increase of 12.0 percent globally
“2017 was a monumental year for Skechers, as we achieved sales of more than $4 billion for the first time in our 25-year history,” began Robert Greenberg, Skechers chief executive officer. “This growth is due to our continued focus on efficiencies and infrastructure as well as innovation, comfort and relevancy within our product design. In the United States, we remained the No. 1 walking, work, casual lifestyle and casual dress footwear brand, and the No. 2 casual athletic footwear brand*. Our team of legendary athletes and international celebrities, including the chart-topping singer Camila Cabello, drove worldwide appeal in marketing campaigns that represent our diverse product offering—from our heritage retro styling to the innovation and comfort that have become hallmarks of Skechers footwear. Furthermore, we grew our Skechers store base to 2,570 locations at year-end and saw impressive growth across the globe—including record sales on Single’s Day in China. As we look ahead, with fresh styles shipping for Spring, we believe we will remain a leader in the lifestyle footwear channel in the United States, selectively expand our retail footprint, and continue our global growth as we see our international business becoming an increasingly larger piece of our total business.”
“With three months of strong sales, a robust holiday selling season that included increased demand for our innovative lighted children’s footwear and comfortable adult styles, and double-digit growth in each of our three distribution channels, we achieved a new fourth quarter sales record of $970.6 million,” stated David Weinberg, chief operating officer of Skechers. “The four record sales quarters in 2017 resulted in a new annual sales record of $4.16 billion, an increase of over $600 million from the previous year’s sales. This growth is a testament to the worldwide strength and relevance of our product, marketing and brand.”
In the quarter, sales grew 27.0 percent as a result of a 40.2 percent increase in the Company’s international wholesale business, an 11.6 percent increase in the Company’s domestic wholesale business and a 25.8 percent increase in its Company-owned global retail business. Comparable same-store sales in Company-owned stores increased 12.0 percent, including a domestic increase of 10.5 percent and an international increase of 16.5 percent.
Gross margins increased due to strength in the Company’s international retail business and increased sales in the Company’s international subsidiary business.
SG&A expenses increased 21.6 percent. This increase was driven by $67.4 million in general and administrative expenses, including $37.8 million to support international growth in the Company’s joint venture and subsidiary businesses, and $20.1 million associated with operating 75 additional Company-owned Skechers stores, of which 22 were opened in the fourth quarter. Selling expenses increased by $4.4 million primarily due to higher international advertising expenses as well as $1.5 million in increased sales commissions in its South Korea joint-venture business.
Earnings from operations increased 96.9 percent, primarily due to sales growth.
Net loss was $66.7 million and diluted loss per share was $0.43 per share. However, after adjusting for the impact of Tax Cuts & Jobs Act (“TCJA”), adjusted net earnings were $33.3 million and adjusted diluted earnings per share were $0.21.
The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in a provisional additional income tax expense of $99.9 million in the fourth quarter, or an impact of $0.64 per diluted share. The additional expense encompasses several elements, including a one-time tax on accumulated overseas profits and the revaluation of deferred tax assets and liabilities. As a result, the Company’s reported tax rate was 194.4 percent for the fourth quarter, and 38.8 percent for the full year. Excluding the additional expense, the Company’s tax rate would have been 12.2 percent for the fourth quarter and 12.8 percent for the full year. The Company will continue to analyze the impact of the TCJA to determine its full effects. However, based on current expectations, the Company’s 2018 annual tax rate is estimated to be in the range of 12 percent to 17 percent.
Full-year sales growth was the result of a 24.3 percent increase in the Company’s international wholesale business, a 21.9 percent increase in the Company’s global retail business and a 4.1 percent increase in the Company’s domestic wholesale business. Comparable same store sales in Company-owned stores increased 7.2 percent, including a domestic increase of 6.4 percent and an international increase of 10.1 percent.
Gross margins improved due to the sale of more in-line product in 2017 and a stronger Company-owned retail and international business.
SG&A expenses increased 23.1 percent including an increase in selling expenses of $70.1 million, primarily to support growth in its international markets. It also included an increase of 22.0 percent in general and administrative expenses, principally due to $73.7 million in new store operating costs associated with 75 additional Company-owned stores opened in the year and $109.5 million to support growth in the Company’s international joint venture and subsidiary businesses.
Earnings from operations increased 3.3 percent primarily from increased sales growth.
Net earnings were $179.2 million and diluted earnings per share were $1.14 per share. However, after adjusting for the impact of TCJA, adjusted net earnings were $279.1 million and adjusted diluted earnings per share were $1.78.
At year-end 2017, cash and cash equivalents were $736.4 million, an increase of $17.9 million, or 2.5 percent over last year.
Total inventory, including inventory in transit, was $873.0 million, a $172.5 million increase, or 24.6 percent, over December 31, 2016, and in line with the Company’s incoming order rate, as well as the Company’s growing retail and wholesale businesses.
Working capital was $1.5 billion versus $1.2 billion at December 31, 2016, primarily reflecting increased investment in inventory for 2018.
“Our relevant and affordable products are resonating with consumers across the globe. This, combined with the investments and efficiencies we have made in our global infrastructure, directly contributed to our record sales performance in 2017. It also uniquely positions us for success in 2018 and beyond,” said John Vandemore, chief financial officer of Skechers. “In addition, our strong balance sheet and significant free cash flow allows us to fully execute our capital allocation strategy by continuing to make high-growth investments and to return cash directly to stockholders in the form of a stock repurchase.”
In February 2018, the Board of Directors authorized a stock repurchase program, under which the Company plans to repurchase up to $150 million of its Class A common stock through February 8, 2021 in the open market at prevailing prices.
Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the United States Securities and Exchange Commission and other applicable legal requirements. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The repurchase program does not obligate the Company to acquire any particular amount of Class A common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.
For the first quarter of 2018, the Company believes it will achieve sales in the range of $1.175 billion to $1.200 billion, and diluted earnings per share of $0.70 to $0.75.
Photo courtesy Skechers