By Thomas J. Ryan
Skechers USA Inc. reported earnings declined slightly in the second quarter largely due to foreign currency translation and exchange losses. Revenues gained 9.7 percent as strong growth overseas offset a 5.4 percent decline domestically due to the timing of shipments.
Second quarter 2016 net sales were $877.8 million compared to $800.5 million for the second quarter of 2015. Gross profit for the second quarter of 2016 was $416.3 million, or 47.4 percent of net sales, compared to $374.6 million, or 46.8 percent of net sales, for the second quarter of last year. Earnings from operations for the second quarter of 2016 were $100.4 million, or 11.4 percent of net sales, compared to earnings from operations of $112.3 million, or 14 percent of net sales for the second quarter of 2015.
“Skechers achieved new record second quarter net sales of $877.8 million, which led to a $1.86 billion net sales record for the first six months of 2016,” began David Weinberg, COO and CFO. “The growth in the quarter was primarily attributable to a 34.6 percent increase in our international subsidiary and joint venture businesses and a 40.5 percent increase in our international company-owned Skechers retail stores. This resulted in our international wholesale and retail business comprising 41.9 percent of total sales for the second quarter and 45. percent for the first six months of 2016. Company-owned Skechers retail sales increased 15.4 percent for the quarter. As expected, in our domestic wholesale business, shipments were pulled forward from April into March, resulting in significantly reduced shipments in April and a sales decrease of 5.4 percent in the second quarter, but an increase of 3.2 percent for the first six-months. Our strong gross margins of 47.4 percent for the quarter were primarily the result of higher sales increases in our international subsidiary and joint venture businesses as well as our company-owned retail stores.”
Net earnings in the second quarter of 2016 were $74.1 million compared to net earnings of $79.8 million for the second quarter of 2015. Diluted net earnings per share in the second quarter of 2016 were $0.48 based on 155 million weighted average shares outstanding compared to diluted net earnings per share of $0.52 based on 154 million weighted average shares outstanding for the same period last year.
The company’s diluted earnings per share for the second quarter of 2016 were negatively impacted by several factors including foreign currency translation and exchange losses of $8.3 million, or $0.05 per diluted share. In addition, the company had G&A expenses for additional VAT taxes in Brazil of $2.7 million and a fire in its Malaysia warehouse, which resulted in a pre-tax loss of approximately $0.9 million. These factors reduced diluted earnings per share by $0.02. In addition, the company’s annual effective tax rate for the second quarter was 12.7 percent, and 18.1 percent for the first six months, which increased its net earnings and diluted earnings per share. The company’s annual effective tax rate is significantly lower than its previous guidance, primarily due to reduced projected domestic earnings combined with increased projected earnings from its China operations, which has a lower tax rate than its U.S. effective tax rate.
For the six months ended June 30, 2016, net sales were $1.86 billion compared to net sales of $1.57 billion in the first six months of 2015. Gross profit for the first six months of 2016 was $848.4 million, or 45.7 percent of net sales, compared to $707.1 million, or 45.1 percent of net sales, for the first six months of 2015. Earnings from operations for the first six months of 2016 were $238.9 million, or 12.9 percent of net sales, compared to earnings from operations of $200.5 million, or 12.8 percent of net sales, for the first six months of 2015.
Net earnings in the first six months of 2016 were $171.7 million compared to net earnings of $135.9 million in the same period last year. For the first six months of 2016, diluted net earnings per share were $1.11 based on 154.9 million weighted average common shares outstanding compared to diluted net earnings per share of $0.88 based on 153.8 million weighted average common shares outstanding for the first six months of 2015.
Robert Greenberg, Skechers CEO, commented, “In an environment that included economic and political uncertainty in both the United States and abroad, as well as challenges in the domestic retail space resulting in a promotional sales environment, Skechers was a brand that customers and consumers could count on—for delivering comfort, style and quality, as well as supporting it with marketing. In the second quarter, we focused on designing great new product, marketing our spring collections, previewing upcoming seasons with our global accounts, and preparing for back to school 2016. In the United States and in many markets around the world, we continued to air our celebrity campaigns for the Spring selling season—including Demi Lovato in Skechers Burst, Meghan Trainor in Skechers Originals, Sugar Ray Leonard in Skechers Sport, and Meb in Skechers GORun Ride 5, along with many other commercials, including those for our growing kids business. Already with multiple Skechers Kids commercials on air in the United States, we are looking forward to the back-to-school selling season, and the launch of our men’s and women’s campaigns in a couple weeks along with new styles including GOwalk 4.”
As for the company’s international stage, Greenberg continued, “International is a key focus for Skechers as we expand our reach and deliver more product into more channels of distribution—including the expansion of our retail arm of the company with our first Skechers stores in Belgium, Norway and Finland; another 42 Skechers stores in China—bringing the total Skechers store count to 233 in that country; and double-digit sales growth in many countries—from Germany to Canada and Scandinavia to Russia. Together with our international partners, we opened a net 133 Skechers stores in the second quarter, bringing the total number of Skechers retail stores to 1,548, of which 1,144 are outside the United States. We expect to have more than 1,600 Skechers stores by year-end, including our first retail stores in Uruguay, Paraguay, Botswana and Sri Lanka, as well as the opening next month of our store at One World Trade Center in New York…We are looking forward to maintaining our position as a brand leader in the United States, and growing our market share around the world.”
Weinberg added, “As previously mentioned, over the first half of 2016 we saw a shift in shipments between quarters in comparison to the prior year period. Last year’s second quarter was extremely strong as shipments were pushed from the first quarter into the second quarter of 2015, while this year shipments were pulled from the second quarter into the first quarter of 2016. Looking at the first six months of 2016 together, net sales increased 18.4 percent, a significant achievement over a previous record period.
In June 2016, the company reportedly experienced its biggest shipping month in history from its North American Distribution Center, while the European Distribution Center also exceeded its planned shipping for June, which was the biggest month in the quarter.
“Based on our June shipments as well as the strong start to July, we believe this positive momentum will continue into the third quarter. The shifting of shipments and changes in how our accounts are ordering is also affecting our backlog, which is down low single digits worldwide, excluding China,” continued Weinberg. “Total inventories decreased $29.5 million or 4.8 percent from December 31, 2015, and increased $120.1 million or 25.5 percent from June 30, 2015, and are in line with our growth and higher company-owned store count. Our financial position is strong with $628.8 million in cash and cash equivalents. As international becomes a larger piece of our total business, we believe there is upside opportunity for the third quarter of 2016, with net sales estimated between $950 million and $975 million.”
Photo courtesy Skechers
