<span style="color: #6e6e6e;">Skechers USA’s sales and earnings topped its guidance in the second quarter, but the company maintained its outlook for the year given escalating macroeconomic headwinds worldwide.

Asked by an analyst on a conference call about the potential impact of a slowing economy, John Vandemore, CFO, noted that many companies have pointed to a “much more uncertain future,” and the uncertainty is reflected in Skechers’ conservative guidance.

Vandemore added, “Things are changing relatively dynamically. We still see good trends in most of our retail locations, particularly globally. But we’re cognizant that the environment will make it slightly more difficult for the average consumer. We believe we’re providing very good value in our product along with the comfort, style and quality that we’re known for. We think that is a favorable backdrop in an environment where the economy is under some form of duress.”

David Weinberg, COO, added, “Historically, as these economic movements happen, for me, it’s more about the product than just the price point. People don’t tend to shop price if it’s not something they want.

What we offer, and what we offer today with our new entrees into slip-ins and comfort and making it more comfortable across a broad range of categories, gives us opportunities, even in a downturn, for people looking for our products because they are priced right, although not on the lower end, and brings that quality and comfort with them and their fashion. As in the past, we have the opportunity to take advantage of an adverse situation by offering the right product at the right price. It’s a combination for us.”

In the second quarter ended June 30, sales increased 12.4 percent to $1.88 billion, besting the company’s guidance that had called for revenues in the range of $1.75 billion to $1.80 billion.

Net earnings were down 34.2 percent to $90.4 million, or 58 cents a share, due mainly to higher freight costs to offset supply chain challenges. 

EPS topped guidance between 50 cents and 55 cents.

Weinberg said total growth of 12 percent, or 16 percent on a constant-currency basis in the quarter, was the result of increases in domestic and international business of 15 percent and 10 percent, respectively. Excluding China, where operational activities were limited, sales grew 20 percent.

By region, the growth was driven by increases of 21 percent in the Americas and 8 percent in the EMEA, which improved 17 percent on a constant-currency basis. APAC sales were flat year-over-year, primarily due to lockdown measures in China, which began easing in June and were offset by growth in most other Asia Pacific markets. On a constant-currency basis, APAC sales improved 5 percent.

Wholesale Segment Sales Jump 18 Percent
In the quarter, wholesale segment sales jumped 18 percent, led by 35 percent growth in the Americas and 6 percent growth in the EMEA, partially offset by a 3 percent decrease in APAC. Overall, wholesale sales were driven by an increase in unit volume and average selling price per unit.

Skechers’ U.S. wholesale business increased 30 percent due to double-digit improvements across genders and categories, including apparel and accessories. Weinberg said, “This reflected strong consumer demand and improved product availability. In addition to the growth in the United States, nearly every other market in the Americas achieved double-digit growth, including Mexico and Canada.”

Growth in EMEA wholesale was primarily driven by distributor sales, particularly in the Middle East, Africa, Scandinavia, and Turkey. Currency headwinds partially offset the EMEA improvements due to the weakening euro and continued cessation of shipments to Russia.

APAC wholesale sales declined primarily due to the lockdown measures throughout much of the quarter in China. India, which faced temporary store closures and lockdown measures during the year-ago second quarter, returned to solid growth this year, driven by pent-up demand and improved product availability. South Korea, Malaysia and distributors in Australia and New Zealand also saw improvement.

Weinberg added, “While China continues to navigate the effects of COVID, we are confident in the long-term prospects for Skechers in this region.”

DTC Sales Improve 4 Percent
Direct-to-consumer (DTC) segment sales increased 4 percent in the quarter due to growth of 14 percent in the EMEA, 4 percent in the Americas and 3 percent in APAC.

Domestic DTC sales decreased slightly, primarily due to a difficult retail store comparison to last year, partially offset by growth in digital commerce. China, which experienced lockdown measures for much of the quarter, saw a sales decline in stores and online, although sequential improvements were seen compared to the first quarter. Most of the company’s stores in China have reopened, though traffic is not back to pre-closure levels. Nearly all other countries showed improvements.

In the second quarter, 46 company-owned Skechers stores were opened, including 15 big box stores in the U.S, seven in India and nine in China. Thirty-four locations were closed in the quarter, including five concept stores in the U.S. and 24 in China. Skechers ended the quarter with 4,355 stores worldwide, of which 2,993 were third-party stores, including 123 that opened in the second quarter.

The rollout of the brand’s latest e-commerce platform continued in the second quarter with the launch of new sites in Belgium, the Czech Republic, Hungary, Italy, the Netherlands, and Portugal. Two additional sites in Europe, two in South America and one in Japan will launch this year. Skechers Plus Loyalty Program is expected to expand to international markets, beginning with Canada, the UK, Germany, and Spain.

Gross Margins Decline 330 Basis Points
Gross margin in the quarter was 48.1 percent, a decrease of 330 basis points, primarily driven by higher per unit freight costs partially offset by average selling price increases.

Operating expenses increased 14.0 percent, and as a percentage of sales, they rose 50 basis points to 39.8 percent from 39.3 percent in the prior year. Selling expenses increased by $25.1 million, or 17.8 percent, due to higher global demand creation expenditures. General and administrative expenses increased $65.9 million, or 12.9 percent, primarily due to volume-driven increases in labor and warehouse and distribution expenses and higher rent. Earnings from operations decreased 23.4 percent to $154.2 million.

Inventories Climb 48 Percent Year-Over-Year
Inventory was $1.56 billion, 6.3 percent from December 31, 2021, primarily reflecting growth in the Americas region. Inventory was up 48 percent year-over-year; this includes nearly $475 million of in-transit inventory, a year-over-year increase of 69 percent, reflecting longer lead times.

Vandemore said Skechers, during the second quarter, continued to experience challenges from shipment delays, particularly in Asia due to COVID-related countermeasures but also domestic processing congestion at its distribution centers and retail store wholesale partners.

“Our supply chain and logistics teams are working diligently to ensure our products are delivered to our customers and stores and ultimately reach our consumers as quickly and efficiently as possible,” said Vandemore. “However, we expect supply chain disruptions to continue to constrain our ability to fully meet consumer demand and drive distribution inefficiencies throughout the year. Yet, we remain confident that our expanding operational capacity and disciplined execution will gradually moderate the impact of these dynamics.”

For the third quarter of 2022, Skechers projected sales between $1.80 billion and $1.85 billion and EPS between 70 and 75 cents. In the 2021 third quarter, EPS was 66 cents on sales of $1.55 billion.

For the full year, Skechers expects sales between $7.2 billion and $7.4 billion and EPS between $2.60 and $2.70. In 2021, adjusted EPS was $2.59 on sales of $6.29 billion.

Photo courtesy Skechers