With all channels delivering double-digit growth, Skechers USA reported fourth-quarter results that came in well above guidance.
In the quarter, sales rose 27.0 percent to $970.6 million. Adjusted to exclude a massive tax charge, earnings jumped nearly five-fold to $33.3 million, or 21 cents a share, from $6.7 million, or four cents, a year ago.
When it released third-quarter results, Skechers had predicted sales would arrive in the range of $860 million and $885 million and earnings in the range of nine cents and 14 cents. Wall Street’s consensus estimate had been 13 cents on sales of $879.07 million.
The net loss came to $66.7 million, or 43 cents a share. 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 quarter, or an impact of 64 cents per share.
The sales growth was driven by increases in all business segments, including company-owned global retail stores of 25.8 percent, international wholesale of 40.2 percent and domestic wholesale of 11.6 percent. The latest period was also positively impacted by $20 million to $25 million of shipments originally planned for the first quarter.
Gross margins increased 20 basis points to 46.8 percent. This improvement was attributable to strength in its international company-owned retail business and a higher contribution to our sales from its international subsidiary.
SG&A expenses increased 21.6 percent due to investments to support international growth in the company’s joint venture and subsidiary businesses as well as costs associated with operating 75 additional company-owned Skechers stores. As a percent of sales, however, SG&A was still down to 41.7 percent from 43.6 percent due to sales leverage.
For the year, sales increased 16.9 percent to $4.16 billion. With the charge, earnings slid 26.4 percent to $179.2 million, or $1.14. On an adjusted basis, earnings for the year grew 14.6 percent to $279.1 million, or $1.78.
On a conference call with analysts, David Weinberg, COO, said domestic wholesale revenues increased 11.6 percent for the fourth quarter and 4.1 percent for the year. The quarterly growth was the result of a 13.9 percent increase in pairs shipped and a two percent decrease in average price per pair, primarily due to the product mix and strength of several collections that have lower average selling price.
Men’s and women’s footwear achieved double-digit growth in the quarter. Kids was flat for the quarter, but increased 6.4 percent for the full year. Weinberg said the company sees the kids decline in the quarter as a matter of timing with the category’s sales up 37.9 percent in the third quarter due to pre-holiday selling.
“The growth in our men’s and women’s businesses was across multiple lines including GO, On the GO, GOLF, casuals and work, among others,” said Weinberg. “Men’s Sport also performed extremely well.”
For the holiday period, several digital and television campaigns including product-focused spots for Skechers GOwalk Joy, Skech-Knit, Mark Nason and Kids’ lighted footwear were run.
Campaigns also ran for its Sport and Relaxed Fit footwear, featuring brand ambassadors Sugar Ray Leonard and Howie Long, who also appeared on its Super Bowl ad this year. A new campaign in English and Spanish was introduced with baseball legend David Ortiz. Targeting teens and young women, Camila Cabello’s Skechers campaign ran on both on TV and on social media.
Meb Keflezighi completed his final marathon in competition, placing 11th at the New York Marathon.
“Meb will continue to work with Skechers Performance team as he has done over the past six years,” said Weinberg. “We ended the year again as the leading, walking, work and casual lifestyle and casual dress footwear brand, and the second-largest casual athletic footwear brand. With the resurgence in retro styling and our heritage footwear lines, we believe our domestic business will remain strong as consumers seek comfort and style at a compelling price.”
In its other segments, total international wholesale sales increased by 40.2 percent, or $116.4 million in the fourth quarter and 24.3 percent or $338.7 million for the full year. International wholesale and retail combined represented 50.6 percent of sales in the quarter.
The quarterly increases were the result of 53.6 percent growth in its subsidiary and joint venture businesses and 3.1 percent growth in its distributor business. The quarterly growth is attributable to double-digit increases in nearly every subsidiary and joint venture market, as well as double-digit growth in several of key distributors, including Australia, New Zealand, the Philippines, Russia and Turkey, and triple-digit gains in Ukraine.
Skechers’ wholly-owned international subsidiary business grew 41.8 percent and its joint venture sales grew 58.9 percent. The markets with the highest dollar gains were China, South Korea and the UK, and those with the highest percentage gains were Italy and Spain.
China particularly stood out, shipped 5.2 million pairs in the quarter and 17 million for the full year. This includes 1.4 million pairs for Single’s Day, an increase of 76 percent over last year. Said Weinberg, “Our international business remains the biggest growth opportunity and we believe it will continue to grow at a faster pace than that of our domestic businesses.”
In its global company-owned retail business, sales increased 25.8 percent for the quarter and 21.9 percent for full year. The fourth quarter gains were the result of a 15.2 percent increase in its domestic retail stores and a 53.5 percent increase in its international retail stores. This included positive comp store sales of 10.5 percent domestically and 16.5 percent internationally for a combined total comp store sales increase of 12 percent in the quarter.
In 2018, an additional 75 to 85 company-owned Skechers stores are expected to open. Domestic e-commerce business grew 28.2 percent for the quarter and 21.9 percent for the year.
For the first quarter, Skechers expects sales in the range of $1.175 billion to $1.2 billion and net earnings per share in the range of 70 to 75 cents. In the 2017 first quarter, sales were $1.07 billion with EPS at 60 cents.
Photo courtesy Skechers