Skechers USA reported profits in the second quarter were down due to lower gross margins as sales grew 12 percent. Results came in easily above Skechers’ guidance, led by the Americas. Skechers maintained its guidance for the year.

Second Quarter Highlights

  • Record quarterly sales of $1.87 billion, a year-over-year increase of 12.4 percent
  • Wholesale sales grew 18.3 percent
  • Direct-to-Consumer sales grew 4.3 percent
  • Diluted earnings per share of $0.58
  • Repurchased $24.2 million of common stock

Sales of $1.87 billion topped Skechers guidance calling for sales in the range of $1.75 billion and $1.80 billion. EPS of 58 cents, topped guidance between 50 cents and 55 cents.

“Skechers achieved a new quarterly sales record of $1.87 billion, a significant accomplishment especially given the macroeconomic headwinds, supply chain issues and COVID-related restrictions in China during the period,” said David Weinberg, Chief Operating Officer of Skechers. “The growth was the result of increases in sales of 15% in our domestic and 10% in our international businesses. Growth was driven by sales increases of 21% in the Americas and 8% in EMEA. In APAC, where sales were flat due to COVID-related restrictions in China, we saw strong growth in most other markets, particularly in India, South Korea and Malaysia. During the quarter, we focused on delivering our in-demand footwear direct to consumers and through our wholesale partners globally. While we remain cautious given the challenges across the globe, we believe our comfort technology footwear, impactful marketing and the strength of our brand will drive continued sales growth in the back half of the year.”

“2022 is shaping up to be another remarkable year for Skechers with two consecutive record sales quarters, the result of our talented team’s passion, determination and execution to evolve our product offering, inform the world of our exceptional comfort technologies, and effectively navigate the supply chain constraints,” began Robert Greenberg, Chief Executive Officer of Skechers. “In the second quarter, we delivered hands-free comfort footwear to a world now desiring more ease in their lives, expanded our Skechers Arch Fit offering, and designed more fashion-focused styles as comfort at work and play is the new norm. Further, we elevated our performance game with the launch of Skechers Viper Court, a collection designed specifically for the fastest growing sport in America, pickleball, and saw major championship wins on the golf course with Brooke Henderson at this past weekend’s Amundi Evian Championship in France and Matt Fitzpatrick at the U.S. Open at Brookline last month. We also signed several new ambassadors—specific to Europe and Asia, as well as a rising Latin music artist and a global pop sensation, all to further strengthen brand awareness in key markets. This, our 30th year in business, is our strongest year yet from a sales, marketing and product perspective. We are in a unique position as a brand that delivers on comfort technology, style, innovation and quality with a global reach that includes 4,355 Skechers stores. As a company, we are determined to outdo ourselves and reach further heights as we strive to meet our customers’ needs.”

Second Quarter 2022 Financial Results
Second quarter sales increased 12.4 percent as a result of a 15.4 percent increase in domestic sales and a 10.0 percent increase in international sales, primarily driven by strength in wholesale sales. All segments experienced growth, with Wholesale increasing 18.3 percent and DTC increasing 4.3 percent. On a constant currency basis, sales increased 16.4 percent.

Wholesale sales growth of $176.1 million, or 18.3 percent, was led by increases in AMER of 34.9 percent. Wholesale volume increased 14.8 percent and average selling price increased 3.1 percent.

Direct-to-Consumer sales growth of $29.8 million, or 4.3 percent, was led by increases in AMER of 3.7 percent, EMEA of 13.5 percent, and APAC of 2.7 percent. DTC average selling price increased 5.3 percent and volume was essentially flat.

Gross margin 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 $91.0 million, or 14.0 percent, and as a percentage of sales, increased 50 basis points to 39.8 percent from 39.3 percent in the prior year. Selling expenses increased $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, as well as higher rent.

Earnings from operations decreased $47.0 million, or 23.4 percent, to $154.2 million.

Net earnings were $90.4 million and diluted earnings per share were $0.58, a decrease of 34.1 percent over the prior year. Diluted earnings per share include an unfavorable impact of $0.11 due to declines in foreign exchange rates, primarily in EMEA.

In the second quarter, the company’s effective income tax rate was 21.3 percent.

“Skechers continued the diligent execution of our long-term global growth strategy, achieving record quarterly sales primarily from continued strength in our Wholesale segment,” stated John Vandemore, Chief Financial Officer of Skechers. “Despite pandemic-related lockdowns, disruptions in our global supply chain and macroeconomic volatility, we remain focused on our direct-to-consumer capabilities, distribution infrastructure and deepening connections with our consumers in order to drive long-term growth and shareholder value.”

Six Months 2022 Financial Results
Year-to-date sales increased 19.1 percent reflecting a 21.4 percent increase in domestic sales and a 17.3 percent increase in international sales with the largest contribution derived from wholesale sales. Both segments experienced increases, with Wholesale increasing 25.4 percent and Direct-to-Consumer increasing 9.0 percent. On a constant currency basis, the company’s total sales increased 22.1 percent.

Wholesale sales growth of $484.3 million, or 25.4 percent, was led by increases in AMER of 38.2 percent and EMEA of 24.0 percent. Wholesale volume increased 18.8 percent and average selling price increased 5.9 percent.

Direct-to-Consumer sales growth of $106.8 million, or 9.0 percent, was led by increases in AMER of 6.8 percent, EMEA of 44.2 percent, which experienced COVID restrictions in the prior year, and APAC of 5.3 percent. Direct-to-Consumer average selling price increased 9.4 percent resulting from reduced promotions and higher prices.

Gross margin was 46.7 percent, a decrease of 300 basis points, primarily driven by higher per unit freight costs partially offset by average selling price increases.

Operating expenses increased $211.3 million or 17.9 percent. As a percentage of sales, operating expenses improved 40 basis points to 37.7 percent. Selling expenses increased $42.0 million or 18.1 percent, primarily due to higher global demand creation expenditures. General and administrative expenses increased $169.3 million or 17.9 percent, primarily due to higher compensation costs, rent, and volume-driven global warehouse and distribution expenses.

Earnings from operations decreased $28.8 million to $330.1 million.

Net earnings were $211.6 million and diluted earnings per share were $1.35, a decrease of 10.6 percent over the prior year. Diluted earnings per share include an unfavorable impact of $0.14 due to declines in foreign exchange rates, primarily in EMEA.

The company’s effective income tax rate was essentially flat year-over-year at 20.6 percent.

Balance Sheet
Cash, cash equivalents and investments totaled $946.4 million, a decrease of $94.0 million, or 9.0 percent from December 31, 2021, as a result of changes in working capital and completing $49.2 million of share repurchases year-to-date.

Inventory was $1.56 billion, an increase of $92.9 million or 6.3 percent from December 31, 2021. Increased inventory levels primarily reflect growth in AMER.

Share Repurchase
During the second quarter, the company repurchased nearly 636,000 shares of its Class A common stock for $24.2 million. Year-to-date 2022, the company has repurchased almost 1.3 million shares of its Class A common stock at a cost of $49.2 million. At June 30, 2022, approximately $450.8 million remained available under the company’s share repurchase program.

Outlook
For the third quarter of 2022, Skechers believes it will achieve sales between $1.80 billion and $1.85 billion and diluted earnings per share of between $0.70 and $0.75. Further, the company believes that for the fiscal year 2022, it will achieve sales between $7.2 billion and $7.4 billion and diluted EPS of between $2.60 and $2.70, the same outlook as previously.