Skechers U.S.A., Inc. slightly raised its outlook for the year after reporting third-quarter EPS that came in well above targets. Earnings in the third quarter jumped 69.3 percent on significant margin improvement. Revenues gained 7.8 percent revenue gain as a 23.8 percent increase in direct-to-consumer sales offset a slight decline at wholesale.

Sales in the quarter for the footwear maker, based in Los Angeles, of $2.02 billion topped company guidance in the range of $1.95 billion and $2.0 billion. Earnings per share of 93 cents easily topped guidance in the range of 70 cents to 75 cents.

“Skechers’ achieved a new quarterly sales record of $2.02 billion, reflecting robust demand for our brand,” said Chief Operating Officer David Weinberg. “All regions grew, including the Americas, with growth of 7 percent in the United States due to continued strength in our Direct-to-Consumer channel, and Asia Pacific with growth of 18 percent in China. In addition, our inventory levels are down significantly, and our gross margin was strong at 52.9 percent reflecting favorable pricing, a higher mix of direct-to-consumer sales and lower unit costs. As we continue to focus on growing our international business, enhancing our direct-to-consumer presence and expanding our product offering, we remain confident in the strength of our brand and executing Skechers’ long-term growth strategy.”

“Our record third-quarter sales were the result of our continued innovation and determination to deliver comfort, style and quality in every pair,” said Robert Greenberg, chief executive officer of Skechers. “We introduced a collaboration with entertainment legend Snoop Dogg, and we launched Skechers Football boots with Harry Kane, one of the leading strikers in the world and captain of England’s national team. Both ambassadors and their products generated significant media and consumer attention for the brand. And, this week, we announced the signing of two-time NBA All-Star Julius Randle and rising star Terance Mann—both of whom are competing in our Skechers Basketball footwear this week. Leading professional athletes both on the pitch and on the court in Skechers Performance footwear is a testament to our ability to deliver comfort that performs at the highest levels of competition. Designing desirable footwear for fans of Snoop Dogg as well as our ambassador Martha Stewart demonstrates the diversity of style, offering and demographic of the Skechers brand and our customers. We believe our constant innovation to meet the needs of consumers from all walks of life—including professional athletes, and our impactful marketing will drive our success for years to come.”

Second Quarter 2023 Financial Results

  • Third-quarter sales increased 7.8 percent to $2.03 billion as a result of an 8.6 percent increase internationally and a 6.5 percent increase domestically. DTC increased 23.8 percent and Wholesale decreased 1.4 percent. On a constant-currency basis, sales increased 6.7 percent.
  • Wholesale sales declined $17.0 million, or 1.4 percent, which includes decreases in EMEA of 8.3 percent and AMER of 0.5 percent, partially offset by an increase in APAC of 7.1 percent. Wholesale volume decreased 10.8 percent and average selling price increased 10.3 percent.
  • DTC sales grew $163.6 million, or 23.8 percent, which includes increases in AMER of 17.3 percent, APAC of 24.2 percent and EMEA of 60.8 percent. DTC volume increased 18.8 percent and average selling price increased 4.3 percent.
  • Gross margin was 52.9 percent, an increase of 590 basis points, primarily due to higher average selling prices, a higher proportion of DTC sales, and lower freight costs.
  • Operating expenses increased $104.7 million, or 13.9 percent, and as a percentage of sales increased 230 basis points to 42.4 percent. Selling expenses increased $27.4 million, or 18.2 percent, and as a percentage of sales increased 80 basis points to 8.8 percent. The increase was due to higher brand demand creation expenditures. General and administrative expenses increased $77.3 million, or 12.8 percent, and as a percentage of sales increased 150 basis points to 33.6 percent. Increased expenses were primarily driven by increased facility costs, including rent and depreciation and labor.
  • Earnings from operations increased $83.2 million, or 64.0 percent, to $213.2 million, resulting in an operating margin of 10.5 percent.
  • Net earnings were $145.4 million and diluted earnings per share were $0.93 compared with the prior year’s net earnings of $85.9 million and diluted earnings per share of $0.55.
  • In the third quarter, the company’s effective income tax rate was 19.5 percent.

“Skechers’ record quarterly sales and robust earnings growth demonstrate the sustained momentum of our brand. Coupled with a significant improvement in working capital, especially in our overall inventory levels, we remain confident in the strength of our brand and demand for our comfort technology products,” stated John Vandemore, chief financial officer of Skechers. “As we continue to execute against our long-term growth strategy, we believe we remain well positioned to accomplish our objective of generating $10 billion in sales by 2026.”

Nine Months 2023 Financial Results

  • Year-to-date sales increased 8.5 percent to $6.04 billion, reflecting a 15.6 percent increase in international sales and a 1.1 percent decrease domestically. DTC increased 26.0 percent and Wholesale decreased 1.1 percent. On a constant currency basis, sales increased 9.6 percent.
  • Wholesale sales decreased $41.0 million, or 1.1 percent, due to a decrease in AMER of 11.4 percent, partially offset by increases in APAC of 14.5 percent and EMEA of 6.2 percent. Wholesale volume decreased 8.5 percent and average selling price increased 7.8 percent.
  • DTC sales grew $514.6 million, or 26.0 percent, due to increases in AMER of 24.2 percent, APAC of 22.4 percent, and EMEA of 47.8 percent. DTC volume increased 22.9 percent and average selling price increased 2.5 percent.
  • Gross margin was 51.5 percent, an increase of 470 basis points, primarily driven by higher average selling prices and a higher proportion of DTC sales.
  • Operating expenses increased $310.9 million or 14.5 percent. As a percentage of sales, operating expenses increased 210 basis points to 40.7 percent. Selling expenses increased $68.3 million or 16.0 percent, primarily due to higher global demand creation expenditures. General and administrative expenses increased $242.6 million or 14.1 percent, primarily driven by labor, increased facility costs, including rent and depreciation, and warehouse and distribution expenses.
  • Earnings from operations increased $194.5 million to $654.5 million, resulting in an operating margin of 10.8 percent.
  • Net earnings were $458.6 million and diluted earnings per share were $2.93, an increase of 54.2 percent over the prior year.
  • The company’s effective income tax rate was 18.5 percent.

Balance Sheet
Cash, cash equivalents and investments totaled $1.27 billion, an increase of $484.6 million, or 61.5 percent from December 31, 2022, primarily due to increased earnings and favorable changes in working capital, primarily inventory improvements as we worked through capacity challenges and processing constraints at our distribution centers. Increases were partially offset by capital expenditures of $238.7 million, $100.0 million of share repurchases year-to-date and payments of $70.4 million, net of cash acquired, related to the acquisition of our Scandinavian distributor.

Inventory was $1.38 billion, a decrease of $436.0 million or 24.0 percent from December 31, 2022.

Share Repurchase
During the third quarter, the company repurchased approximately 805,486 shares of its Class A common stock at a cost of $40.0 million. Year-to-date 2023, the company has repurchased nearly 2.1 million shares of its Class A common stock at a cost of $100.0 million. At September 30, 2023, approximately $325.7 million remained available under the company’s share repurchase program.

Outlook
For the fourth quarter of 2023, the company believes it will achieve sales between $1.91 billion and $2.01 billion and diluted earnings per share of between $0.40 and $0.50. Further, the company believes that for the full year 2023, it will achieve sales between $7.95 billion and $8.05 billion and diluted earnings per share of between $3.33 and $3.43. Previously, Skechers’ 2023 forecast called for sales between $7.95 billion and $8.1 billion and diluted earnings per share of between $3.25 and $3.40.

Photo courtesy Skechers