Skechers USA posted flat sales in the 2020 fourth quarter even as the direct-to-consumer (DTC) business took a hit from closed owned-retail stores and the subsidiary’s business in Latin America and Europe surged with strong double-digit growth. The company saw strong growth in its e-commerce business, but Skechers’ focus on its owned-retail stores limited its DTC business opportunities.

In the fourth quarter, sales totaled $1.32 billion, a decrease of half of a percent versus the prior-year comp period, which represented a record Q4 for the company. On a constant-currency basis, sales decreased 2.5 percent due to a mid- to high-single decline in DTC sales, which was negatively impacted by reduced traffic in the company’s brick & mortar stores, a result of the “stay at home guidelines and an overall decline in foot traffic and tourism.” Skechers saw International sales improve 1.1 percent versus the comp period last year while its domestic business decreased 2.8 percent.

Domestic wholesale sales increased 1.2 percent, fueled by “broad strength across customer types and encouraging consumer sell-through in multiple categories,” primarily athletic casuals, walking and work footwear, and high-single-digit improvement in its men’s business.

International wholesale sales increased 2.5 percent in the quarter. SKX subsidiaries were up 12.7 percent, led by Latin America and Europe, which grew 29.9 percent and 22.9 percent, respectively. The subsidiary growth was attributed to “exceptional improvements in the United Kingdom, Germany, Chile, and Spain.” Joint ventures were up 19.4 percent in the quarter, with China up 29.7 percent, driven by a strong e-commerce channel performance, particularly around Singles’ Day and December’s 12/12 event. These increases were reportedly offset by its distributor business, which decreased 57.9 percent in the quarter, reflecting “acute challenges in several distributor managed markets,” specifically ongoing store closures in several markets, including the company’s largest distributor, which covers the Middle East.

Direct-to-consumer sales decreased 6.4 percent in the fourth quarter, resulting from a 7.6 percent decrease in its Domestic business and a 4.4 percent decrease in the International market, reflecting “both challenged consumer traffic trend and the impact of temporary store closures in operating our restrictions.” The negative results were partially offset by another strong increase in its domestic e-commerce business, which grew 142.7 percent in the prior-year period.

“We believe our domestic brick & mortar stores will continue to be impacted by the pandemic at least through the first half of the year, though we expect to see improvement as more people receive vaccinations and government restrictions ease,” suggested company COO, David Weinberg. He said consumer traffic at its stores was approximately 35 percent lower, and operating hours were reduced by roughly 20 percent. According to Weinberg, all Skechers stores in the U.S. are now reportedly open, and some domestic regions are trending positive, while others are still impacted by reduced hours and traffic due to local guidelines.

Weinberg continued, “With a focus on improving our direct-to-consumer experience over the holiday season, customers were able to shop online and pickup in-store at many of Skechers locations across the United States. We are now completing the update to our point-of-sale system to better connect within our e-commerce channel and finalizing enhancements to our loyalty program, both of which we believe will further improve our omnichannel offering.” He said they view the e-commerce channel as an opportunity for meaningful growth and plan to launch new sites across Europe and South America, which will “provide both a better brand experience for consumers and a new sales channel for Skechers in many regions.”

The International DTC decrease was said to be due to a decline in traffic with the stay-at-home guidelines, reduced hours and temporary closures primarily in Europe, Canada and Latin America.

“For our international company-owned stores, we effectively lost 17 percent of the days available to sell during the quarter,” Weinberg detailed in his comments on a conference call with analysts. “At quarter-end, nearly 10 percent of our company-owned stores were closed due to health guidelines. Today, due to government restrictions, a number of our international locations remain closed or have reduced hours.

The company opened 19 company-owned Skechers stores in the fourth quarter, 12 of which were international locations, including its Munich flagship store. Skechers closed six locations in the fourth quarter, and another 18 have closed to-date in the first quarter. By the end of the first quarter, another five-to-seven company-owned stores are expected to close.

An additional 108 third-party Skechers stores opened in the fourth quarter, bringing the total store count to 3,891 doors at quarter-end. The stores that opened were across 22 countries, with China opening the most locations, including its first dedicated golf store at the same Mission Hills Golf Resort in Shenzhen.

Fourth-quarter gross margin increased over 100 basis points versus the prior-year period, primarily driven by a “favorable mix of international and online sales and an increase in domestic wholesale average selling price.” CFO John Vandemore said higher full-price sell-through of several innovative platforms like Arch Fit and Max Cushioning drove average selling prices higher.

Total operating expenses increased 8.6 percent to $595.7 million in the quarter. Selling expenses increased by 10.4 percent to $97.9 million, primarily due to “an increase in domestic demand creation through digital advertising channels.”

General and Administrative expenses increased 8.3 percent to $497.8 million, which was primarily the result of volume-driven costs in warehouse and distribution for both its international and domestic e-commerce businesses.

Earnings from operations were $57.7 million in the fourth quarter versus $94.1 million in the prior-year period. Net earnings were $53.3 million or 34 cents per diluted share. Net income included a one-time, discrete tax benefit of $15.9 million. Excluding the effects of this one-time tax benefit, adjusted diluted earnings per share were 24 cents per share, compared to prior-year net income of $59.5 million, or 39 cents per diluted share, in the 2019 Q4 period.

Turning to the balance sheet, SKX ended the quarter with $1.37 billion in cash and cash equivalents, an increase of $545.9 million, or 66.2 percent, from December 31, 2019. The increase primarily reflects the company’s outstanding borrowings of $452.5 million on a senior unsecured credit facility. Net of those borrowings and nearly $310 million in capital expenditures, cash, and cash equivalents, still grew by over $90 million. Trade accounts receivable at quarter-end were $619.8 million, a decrease of 4 percent or $25.5 million from the prior year-end, primarily due to lower distributor sales.

Total inventory was $1.02 billion at quarter-end, a decrease of 5 percent versus December 31, 2019, mainly due to lower domestic and European stock, partially offset by higher inventories in China to support sales growth. Still, China’s inventories declined versus the third quarter.

Skechers USA saw total debt, including both current and long-term portions, was $735 million at December 31, 2020, compared to $121 million at December 31, 2019, primarily reflecting the drawdown of its senior unsecured credit facility in the first quarter of 2020.

Photo courtesy Skechers