Skechers U.S.A., Inc. significantly raised its guidance for the year after reporting earnings and sales in the second quarter that came in well ahead of guidance. Sales rose 127 percent in the second quarter year-over-year and gained over 30 percent as compared to the second quarter of 2019.
Second Quarter Highlights
- Record quarterly sales of $1.66 billion, an increase of 127.3 percent year-over-year, and 31.7 percent over the second quarter of 2019;
- Domestic Wholesale sales grew 205.7 percent;
- DTC sales grew 137.8 percent;
- Record quarterly diluted earnings per share of $0.88; and
- Fully repaid $452.5 million revolving credit facility.
“Skechers second-quarter financial results exceeded expectations as we achieved record quarterly sales of over $1.6 billion, a 127.3 percent increase over the same period in 2020, and 31.7 percent increase over 2019,” stated David Weinberg, COO, Skechers. “This growth, along with both record gross margin of 51.2 percent and record quarterly diluted earnings per share of $0.88, was the result of triple-digit improvements in both our domestic and international businesses compared to second quarter 2020 and over 30 percent as compared to the second quarter of 2019. We accomplished these financial results even as we continued to face COVID-19-related challenges including delayed shipments and port constraints as well as temporary store closures in some key markets, including India, Canada and parts of Europe and South America. With a higher average selling price and significantly more units sold, we saw sales increases of 205.7 percent in Domestic Wholesale, 137.8 percent in direct-to-consumer and 94.8 percent in International Wholesale over the second quarter of 2020. As consumers began returning to a more normal lifestyle in many markets, demand increased for our comfort technology products, including in North America, across Europe and in China, which achieved double-digit gains over both 2020 and 2019. Looking to the remainder of the year and into the next year, we remain confident in the strength of our brand and the relevance of our distinct product offering.”
“Innovation and developing footwear technology has been a significant part of Skechers’ DNA for much of our history—from our durable occupational footwear made to last to the lightweight cushioning and performance materials for our first-generation Skechers Go Run and Skechers Go Walk lines, to features that deliver comfort in every pair. Other features and products like our Skechers Air-Cooled Memory Foam Technology and, more recently, our growing recycled collection called Our Planet Matters exemplify this,” began Robert Greenberg, CEO, Skechers. “Our core product philosophy of comfort, style, innovation, and quality at the right price has resonated with consumers during the pandemic and as we emerge from it. Consumers are embracing a more relaxed lifestyle and want to incorporate comfort into their work and weekend wear. To communicate that Skechers is the ‘Comfort Technology Company,’ we delivered new campaigns for men, women and kids that highlighted this key message. In the second quarter, our multi-platform approach included traditional television, outdoor, print, and online in global markets. Our strategic approach to marketing created awareness, drove sales and resulted in our record revenues. Our intention is to continue innovating and improving our comfort technologies to deliver fresh new products in the coming seasons.”
Second Quarter 2021 Financial Results
- Second-quarter sales increased 127.3 percent as a result of a 147.3 percent increase in domestic sales and a 113.7 percent increase in international sales. Domestic and international growth was driven by increases in both wholesale and DTC as COVID-19 restrictions eased over the prior year. On a constant-currency basis, its total sales increased 117.5 percent.
- Sales grew across all segments with increases to Domestic Wholesale of 205.7 percent, International Wholesale of 94.8 percent, and DTC of 137.8 percent. Improvements in Domestic Wholesale were the result of higher unit sales volume. International Wholesale increases were driven by 150.2 percent growth in its European subsidiaries led by the UK and Germany, 50.9 percent growth in China and 122.3 percent growth in Distributor sales. Improvements in DTC sales resulted from growth across both domestic and international retail stores, slightly offset by declines in domestic e-commerce sales. DTC comparable same-store sales increased 109.2 percent, driven by an increase of 95.6 percent domestically and 165.2 percent internationally.
- Gross margin increased 72 basis points to 51.2 percent primarily driven by increased DTC gross margins, resulting from higher average selling prices and reduced promotional activity. Higher average selling prices were partially offset by the unfavorable channel mix impact from lower domestic e-commerce sales and higher Domestic Wholesale sales.
- SG&A increased $220.3 million, or 51.0 percent. Selling expenses increased by $72.2 million, or 119.9 percent, due to higher global advertising costs. General and administrative increased by $148.0 million, or 39.8 percent. The increase was primarily the result of higher incentive compensation and labor costs and higher global warehouse and distribution expenses.
- Earnings from operations increased from $262.2 million to $201.2 million.
- Net earnings were $137.4 million, and diluted earnings per share were $0.88 against a loss of $68.1 million, or 44 cents, a year ago.
- In the second quarter, its effective income tax rate was 20.4 percent.
Earnings of 88 cents a share topped Wall Street’s consensus estimate of 52 cents and company guidance between 40 and 50 cents a share. Sales of $1.66 billion topped Wall Street’s consensus estimate of $1.49 billion and company guidance between $1.45 billion and $1.50 billion.
“Our record second-quarter results reflect the outstanding execution of our long-term growth strategy. Led by our comfort technology products and resonant brand, we continued to expand globally and further our direct-to-consumer presence,” stated John Vandemore, CFO, Skechers. “The result was evident in growth across our segments and record profitability and is a testament to the prudence of the infrastructure investments we have made and are continuing to make to support our brand and our strategy. These factors coupled with the strength of our balance sheet, give us abundant confidence that Skechers remains poised to continue growing long into the future.”
Six Month 2021 Financial Results
- Year-to-date sales increased 56.5 percent. Year-to-date domestic and international sales each grew 56.5 percent with the largest contribution derived from International Wholesale growth. On a constant-currency basis, the company’s total sales increased 50.9 percent.
- Sales grew across all segments with increases to Domestic Wholesale of 52.2 percent, International Wholesale of 52.3 percent, and DDTC of 69.0 percent. Improvements in Domestic Wholesale were the result of higher unit sales volume. Improvements in International Wholesale were the result of growth in China of 88.4 percent and Europe of 32.9 percent. DTC comparable same-store sales increased 54.8 percent, driven by an increase of 59.4 percent domestically and 40.8 percent internationally.
- Gross margin increased 308 basis points to 49.5 percent primarily driven by increased gross margins in its DTC segment, which was the result of increased average selling prices and reduced promotional activity.
- SG&A increased by $240.2 million or 25.5 percent. Selling expenses increased by $83.4 million or 62.1 percent, primarily due to higher global advertising costs. General and administrative increased by $156.7 million or 19.4 percent, primarily due to higher incentive compensation and labor costs and higher global warehouse and distribution expenses.
- Earnings from operations were $358.9 million, an increase of $375.1 million compared to a loss of $16.2 million in the prior-year period.
- Net earnings were $235.9 million and diluted earnings per share were $1.51.
- The company’s effective income tax rate was 20.3 percent.
- Cash, cash equivalents and investments totaled $1.32 billion, a decrease of $258.5 million, or 16.4 percent from December 31, 2020. The company repaid $452.5 million on its revolving credit facility in the second quarter.
- Total inventory was $1.06 billion, an increase of $40.5 million or 4.0 percent from December 31, 2020. Increased inventory levels primarily reflect growth in the International Wholesale segment.
For the fiscal year 2021, the company believes it will achieve sales between $6.15 billion and $6.25 billion and diluted earnings per share of between $2.55 and $2.65. Further, the company believes that for the third quarter of 2021, it will achieve sales between $1.60 billion and $1.65 billion and diluted earnings per share of between $0.70 and $0.75. Previously, Skechers had expected sales for the year between $5.8 billion and $5.9 billion and diluted earnings per share of between $1.80 and $2.00.
Photo courtesy Sketchers