Skechers U.S.A., Inc. raised its outlook for earnings for the year as second-quarter doubled expectations. Sales in the second quarter climbed 7.7 percent as robust growth in its direct-to-consumer (DTC) globally and international wholesale growth offset declining wholesale revenues in the Americas region.

Diluted earnings per share in the quarter were 98 cents a share, a year-over-year increase of 69.0 percent. Skechers had expected EPS in the range of 40 cents to 50 cents. Record quarterly sales of $2.01 billion also topped guidance between $1.85 billion and $1.90 billion.

Skechers also noted that it reduced inventory by $332.0 million or 18.3 percent since December 31, 2022.

“Skechers second quarter results set a new quarterly sales record of $2.01 billion. This achievement continues to reflect the global demand for our comfort technology products, evidenced by double- or triple-digit sales growth in most markets. We saw increases of 20 percent in APAC, including 19 percent in China and 27 percent in India, as well as 16 percent in EMEA, including 29 percent in Germany and 13 percent in the UK,” began David Weinberg, chief operating officer at Skechers. “Our strong gross margin of 52.7 percent was primarily driven by a higher proportion of DTC sales, which grew 29 percent. We were able to deliver our product more effectively and improve our inventory levels, which enabled robust sales across our comfortable, innovative, stylish and high-quality collections. As we look to the future and our goal of $10 billion in annual sales by 2026, we remain focused on improving distribution efficiencies, developing new categories, including some that will be introduced later this year, enhancing our DTC segment, and further expanding our international business, including the acquisition of our Scandinavian distributor, which we believe will deliver increased sales growth in the coming years.”

“The second quarter marked yet another sales record and a new milestone as we made the Fortune 500 list of largest companies, a testament to the strength of our brand and the dedication of our entire organization to consistently create, innovate and meet the footwear needs of consumers,” added Robert Greenberg, CEO of Skechers. “Not only are we outfitting the world in the most comfortable lifestyle footwear, but we are also offering high-performance golf and pickleball shoes and delivering memorable collaborations like our iconic Rolling Stones collection in June, and our Skechers x Ashley Park capsule launched just last week. We strongly believe in the importance of driving awareness of our vast offering. 

“In this quarter alone, we introduced numerous targeted campaigns, including Skechers Uno with Doja Cat, one of Time’s 100 most influential people in 2023, Skechers Hands Free Slip-ins with football legend Tony Romo and Los Angeles Dodgers pitcher Clayton Kershaw, among others, as well as a brand spot with former A-Team star, Mr. T, who claims he’s the only ‘T’ in Skechers. 

“The power of our marketing and the relevancy of our footwear resonates throughout our 4,700 Skechers stores around the world and at retailers, where consumers can slip into our footwear and leave with the understanding that they just purchased unbelievable comfort technology. This is what motivates the Skechers team—the enthusiasm from our partners around the world, and most importantly, the satisfaction from new shoppers and returning loyal fans of our brand. With this incredible momentum, I am confident in our vision for an even more successful future.”

Second Quarter 2023 Financial Results
Second-quarter sales increased 7.7 percent to $2.01 billion due to a 17.9 percent increase internationally and a 4.6 percent decrease domestically. Direct-to-Consumer increased 29.1 percent, and Wholesale decreased 5.9 percent. On a constant currency basis, sales increased 9.1 percent.

Wholesale sales declined $67.3 million, or 5.9 percent, which includes a decrease in AMER of 18.7 percent, partially offset by increases in APAC of 14.3 percent and EMEA of 7.4 percent. Wholesale volume decreased 13.1 percent and average selling price increased 8.0 percent.

DTC sales grew $212.0 million, or 29.1 percent, which includes increases in AMER of 28.2 percent, APAC of 25.1 percent, and EMEA of 47.2 percent. Direct-to-consumer volume increased 23.8 percent and average selling price increased 4.4 percent.

Gross margin was 52.7 percent, an increase of 460 basis points, primarily due to a higher proportion of DTC sales and higher average selling prices.

Operating expenses increased $99.4 million, or 13.4 percent, and, as a percentage of sales, increased 210 basis points to 41.9 percent. Selling expenses increased $20.5 million, or 12.3 percent, and as a percentage of sales, increased 40 basis points to 9.3 percent. The increase was due to higher brand demand creation expenditures. General and administrative expenses increased $78.9 million, or 13.7 percent, and as a percentage of sales, increased 170 basis points to 32.6 percent. Increased expenses were primarily driven by labor, increased facility costs, including rent and depreciation, and warehouse and distribution expenses.

Earnings from operations increased $63.5 million, or 41.2 percent, to $217.7 million.

Net earnings were $152.8 million and diluted earnings per share were $0.98 compared with the prior year’s net earnings of $90.4 million and diluted earnings per share of $0.58.

The company’s effective income tax rate in the second quarter was 17.7 percent.

“Despite anticipated headwinds in the domestic wholesale market, we successfully navigated the challenges and achieved record quarterly sales in addition to a new second-quarter earnings record,” stated John Vandemore, CFO of Skechers. “With sustained momentum in our Direct-to-Consumer business globally and broad-based strength in our international wholesale business, aided by healthy inventory levels and an innovative pipeline of comfort technology products, we continued to show the strength of the Skechers brand and to execute our long-term growth strategy.”

Six Months 2023 Financial Results
Year-to-date sales increased 8.9 percent to $4.01 billion, reflecting a 19.5 percent increase in international sales and a 4.7 percent decrease domestically. DTC increased 27.1 percent, and Wholesale decreased by 1.0 percent. On a constant-currency basis, sales increased 11.1 percent.

Wholesale sales decreased $24.0 million, or 1.0 percent, due to a decrease in AMER of 15.9 percent, partially offset by increases in EMEA of 14.6 percent and APAC of 19.2 percent. Wholesale volume decreased 7.3 percent, and the average selling price increased 6.6 percent.

DTC sales grew $351.0 million, or 27.1 percent, due to increases in AMER of 28.4 percent, APAC of 21.7 percent, and EMEA of 40.4 percent. Direct-to-Consumer volume increased by 25.2 percent, and the average selling price increased by 1.5 percent.

Gross margin was 50.8 percent, an increase of 410 basis points, primarily driven by a higher proportion of DTC sales and higher average selling prices in Wholesale.

Operating expenses increased by $206.1 million or 14.8 percent. As a percentage of sales, operating expenses increased 210 basis points to 39.8 percent. Selling expenses increased $40.9 million or 14.9 percent, primarily due to higher global demand creation expenditures. General and administrative expenses increased $165.3 million or 14.8 percent, mainly driven by labor, increased facility costs, including rent and depreciation, and warehouse and distribution expenses.

Earnings from operations increased from $111.2 million to $441.3 million.

Net earnings were $313.2 million, and diluted earnings per share were $2.00, an increase of 48.1 percent over the prior year. The company’s effective income tax rate was 18.1 percent.

Balance Sheet
Cash, cash equivalents and investments totaled $1.07 billion, an increase of $285.4 million, or 36.2 percent, from December 31, 2022, primarily due to an increase in earnings and favorable changes in working capital, offset by capital expenditures of $147.4 million, payments of $70.4 million, net of cash acquired, related to the acquisition of our Scandinavian distributor and the completion of $60.0 million of share repurchases year-to-date.

Inventory was $1.49 billion, a decrease of $332.0 million or 18.3 percent from December 31, 2022.

Share Repurchase
During the second quarter, the company repurchased approximately 579,475 shares of its Class A common stock for $30.0 million. Year-to-date 2023, the company has repurchased nearly 1.3 million shares of its Class A common stock for $60.0 million. At June 30, 2023, approximately $365.7 million remained available under the company’s share repurchase program.

Outlook
For the third quarter of 2023, the company believes it will achieve sales between $1.95 billion and $2.0 billion and diluted earnings per share between $0.70 and $0.75.

Further, the company believes that for the fiscal year 2023, it will achieve sales between $7.95 billion and $8.1 billion and diluted earnings per share of between $3.25 and $3.40. Previously, guidance called for sales between $7.9 billion and $8.1 billion and diluted earnings per share of between $3.00 and $3.20.

Photo courtesy Skechers x Ashley Park