Skechers USA Inc. reported net earnings in the third quarter jumped 41.8 percent on a 16.2 percent revenue gain with earnings well ahead of Wall Street’s targets.

“Third quarter net sales of $1.095 billion set a new quarterly record for the company, surpassing our previous record in the first quarter earlier this year by $22 million, and resulted in a new nine month record with sales exceeding $3 billion,” stated David Weinberg, chief operating officer and chief financial officer. “The growth came across our three distribution channels—with double-digit increases in our company-owned Skechers retail business worldwide and our international subsidiary and joint venture businesses, as well as a single-digit increase in our international distributor and domestic wholesale businesses. The strong international growth, including the continued strength in China, the resurgence of the United Kingdom and growth across all of Europe combined with our strong international retail business, resulted in international wholesale and retail representing 53 percent of our total sales in the third quarter.”

Third Quarter Financial Results
Quarterly net sales increased 16.2 percent to $1.095 billion compared to third quarter 2016. Wall Street’s consensus estimate had been $1.09 billion.

The growth was the result of a 25.7 percent increase in the company’s international wholesale business, a 1.4 percent increase in its domestic wholesale business, and an 18.6 percent increase in its company-owned global retail business with total comp store sales increases of 4.4 percent. The increase in its company-owned retail business, which included sales growth of 9.5 percent in its domestic channel and a domestic comp store sales increase of 3.1 percent, came despite temporary store closures in Texas and Florida, and continued store closures in Puerto Rico due to the recent hurricanes. The company reported net sales last year of $1.5 million for the days corresponding to the days closed this year due to the hurricanes.

Gross profit for the third quarter of 2017 was $520 million, or 47.5 percent of net sales, compared to $430 million, or 45.6 percent of net sales, for the third quarter of 2016.

Third quarter selling expenses increased $21.8 million to $89.6 million, or 8.2 percent of sales, compared to $67.8 million, or 7.2 percent of sales, in the prior year’s third quarter. The increase was primarily due to increased advertising expenses of $17.2 million, including $3.6 million to support our international subsidiary business, and an additional $3.5 million in selling commissions from its joint venture in South Korea.

General and administrative expenses were $316.9 million, or 28.9 percent of sales, compared to $261.8 million, or 27.8 percent of sales, in the prior year’s third quarter. The year-over-year quarterly increase was primarily due to Skechers’ focus on long-term global growth. The increases included $18.1 million associated with the company’s 67 additional domestic and international retail stores—13 of which were opened in the third quarter, and $27.2 million to support its international growth in its joint venture and subsidiary businesses. Domestic wholesale general and administrative expenses in the third quarter increased $9.7 million year-over-year primarily due to increased headcount in the United States to support its brand worldwide, and improvements in its digital operations, as well as the expansion into new categories and brands.

Weinberg added: “We remain committed to investing in the brand, product, infrastructure, and all areas that will drive further growth opportunities. Our international business continues to have the highest growth potential—both with emerging international markets such as those in South America as well as India, and our established business across Asia. To further build our brand globally, we grew our company-owned store base worldwide to 623 locations, including 187 international stores. Combined with the third-party Skechers stores, there were 2,428 Skechers stores around the world at quarter end.”

Earnings from operations were $116.5 million or 10.6 percent of net sales, which was an increase of $13.1 million or 12.7 percent over the third quarter of 2016.

Net earnings increased 41.8 percent to $92.3 million, and diluted net earnings per share for the third quarter were 59 cents, compared with 42 cents in the prior year. Wall Street’s consensus estimate had been 43 cents a share.

The company’s effective tax rate for the third quarter was 9.4 percent compared to 24.2 percent over the third quarter of 2016. The company expects its effective tax rate for fiscal 2017 to be approximately 13 percent, which is lower than the expected rate of 15 percent at the end of the second quarter. The 9.4 percent tax rate for the quarter is primarily a result of this lower estimate in the expected tax rate for fiscal 2017.

Nine Month Financial Results
Net sales were $3.19 billion, a new nine-month record. Gross profit was $1.48 billion or 46.5 percent of net sales, and earnings from operations were $327.2 million. Net earnings were $245.8 million and diluted net earnings per share were $1.57 per share.

“From day one we have been driven, determined and focused on building a successful company,” began Robert Greenberg, Skechers’ chief executive officer. “Twenty-five years later, the same is true. With innovation and commitment at the forefront of our efforts, we are supporting our teams and their growth in the United States and around the world. It’s those teams that set us apart, working behind the scenes and on the front lines to deliver product rich in style and comfort to our customers. Achieving three record quarters of net sales in 2017, as well as annual record net sales in 2016, is a testament to the power of our team and the brand.”
Greenberg continued: “Now, more so than ever before, we are approaching our business from a global perspective, developing product that will resonate with consumers in the Americas, across Europe, throughout Asia, and the rest of the world. Domestically, the highlight of the third quarter was our back-to-school business, which was led by double-digit sales increases in our Skechers Kids footwear. As with our adult offering, we focused on innovation, comfort and lightweight features, creating a collection that resonated with kids and their parents. The success of our product was most evident in the continued growth of our international business as we achieved strong double-digit growth in the majority of our subsidiary and joint venture managed countries in the third quarter. Further, we are focusing on marketing campaigns that resonate globally—including the signing of singing sensation Camila Cabello, who is known by young women around the world. We believe that with our focus on product, marketing and logistics from a domestic and international perspective, we will continue to see strong growth on a global scale.”

Balance Sheet

At quarter end, cash and cash equivalents was $802.9 million, an increase of $137.6 million, or 20.7 percent over September 30, 2016.

Total inventory, including inventory in transit, was $697.7 million, a $174.3 million increase, or 33.3 percent over September 30, 2016, and a decrease of $2.9 million or 0.4 percent when compared to December 31, 2016.

Working capital was $1.48 billion versus $1.23 billion at September 30, 2016.

Weinberg continued: “Three consecutive record quarters in 2017 and continued growth across our three distribution channels, including double-digit gains in international and an additional ten stores opened in the fourth quarter to date, are a testament to the strength of our brand. With the investments we have made in our infrastructure, our strong cash position, healthy low double-digit increases in backlog on a worldwide basis, and new product delivering for holiday as well as Spring 2018, we believe the momentum we are experiencing will continue this year and in the coming year.”

Outlook
Based on these key indicators, the company believes it will achieve net sales in the fourth quarter in the range of $860 million to $885 million, and diluted earnings per share of 9 cents to 14 cents.

The company expects its capital expenditures for the fourth quarter to be approximately $20 million to $25 million, which includes corporate office upgrades and an additional 12 to 15 company-owned retail store openings and several store remodels.

Photo courtesy Skechers