Profits at Skechers USA surged 61.0 percent in the third quarter ended September 30 on a 19.2 percent revenue gain but both sales and earnings came were below guidance. The footwear giant slightly lowered its EPS and sales targets for the full year.

Third Quarter Highlights

  • Sales of $1.55 billion, a year-over-year increase of 19.2 percent;
  • Direct-to-consumer sales grew 44.1 percent and wholesale sales grew 10.5 percent;
  • Diluted earnings per share of $0.66, a year-over-year increase of 61.0 percent; and
  • Cash, cash equivalents and investments of $1.18 billion.

“Skechers achieved a new third-quarter sales record surpassing $1.5 billion for the period, a remarkable achievement given the ongoing supply chain disruptions,” began David Weinberg, COO, Skechers. “The record quarter was the result of double-digit improvements in both our domestic and international businesses compared to the third quarter 2020, reflecting the relevancy of our product globally and a normalizing retail environment. Traffic increased in our Skechers stores, and we achieved growth of 44.1 percent and significantly higher gross margins in our direct-to-consumer business. Our domestic and international wholesale businesses both grew over 10 percent, an achievement given the global logistical challenges. The increases in international wholesale came largely from double-digit increases in our distributor sales, and strong performance in markets like China and India. As we look to the fourth quarter and into the first half of 2022, we believe supply chain constraints will remain a challenge, although we are beginning to see progress in key global ports, especially in Europe and other international markets. Nonetheless, we are proud of the execution of our global team to deliver our comfort technology footwear to retail stores and our partners around the world to meet the strong demand for Skechers products.”

“Comfort and technology remain at the core of who we are and why Skechers continues to be a leading global footwear brand. We offer signature comfort across the entire Skechers catalog, incorporating innovation, style and quality at a reasonable price. Supply chain constraints challenged our normal delivery speeds, but our teams worked tirelessly to move inventory as quickly as possible, delivering to our stores and partners in an effort to keep up with the demand,” said Robert Greenberg, CEO, Skechers. “While we supported our business with pervasive advertising campaigns globally, we also focused on developing new product, creating what we believe is our strongest offering yet. This includes a growing seasonal collection, with styles comprised of recycled materials and building on our Fit offerings with consumers’ comfort in mind. Our accomplishments were many during the quarter, including remaining the third largest athletic footwear company in the world and achieving a new quarterly sales record for the period. That said, we believe the best is yet to come for Skechers.”

Third Quarter 2021 Financial Results

  • Third-quarter sales increased 19.2 percent as a result of a 20.1 percent increase in domestic sales and an 18.6 percent increase in international sales. Domestic and international growth was driven by increases in both direct-to-consumer and wholesale as COVID-19 impacts continued to ease. On a constant-currency basis, the company’s total sales increased 17.1 percent.
  • Sales grew across all segments with increases to domestic wholesale of 10.1 percent, international wholesale of 10.6 percent, and direct-to-consumer of 44.1 percent. Improvements in domestic wholesale were the result of higher unit sales volume. international wholesale increases were driven by the growth of 61.9 percent in distributor sales, 10.0 percent in China and 67.5 percent in India, partially offset by an 11.0 percent decline in its European subsidiaries.
  • Direct-to-consumer sales grew across all channels, led by domestic and international retail stores, and achieved a double-digit increase in average selling price from higher prices and lower promotions. Direct-to-consumer comparable same-store sales increased 31.0 percent, driven by an increase of 33.7 percent domestically and 25.1 percent internationally.
  • Gross margin increased 150 basis points to 49.6 percent driven by direct-to-consumer gross margin growth, resulting from higher average selling prices, partially offset by declines in international wholesale and domestic wholesale due to higher average costs per unit.
  • Operating expenses increased $94.5 million, or 17.6 percent. Selling expenses increased by $33.8 million, or 39.4 percent, due to higher global advertising costs. General and administrative expenses increased by $60.7 million, or 13.5 percent, primarily as a result of higher labor costs as well as increased rent and warehouse and distribution expenses.
  • Earnings from operations increased from $54.1 million to $146.2 million, an increase of 58.7 percent.
  • Net earnings were $103.1 million and diluted earnings per share were $0.66.
  • In the third quarter, the company’s effective income tax rate was 15.6 percent.

Sales of $1.55 billion came in below Wall Street’s consensus estimate of $1.64 billion while EPS of 66 was short of the consensus target of 75 cents. When it reported second-quarter results on July 22, Skechers said it believes that for the third quarter of 2021, it would achieve sales between $1.60 billion and $1.65 billion and diluted earnings per share of between $0.70 and $0.75.

“Skechers’ double-digit growth across all segments reflects continuing strong demand for our comfort technology products,” stated John Vandemore, CFO, Skechers. “Despite severe global supply chain challenges, we delivered record third-quarter sales along with robust gross margins and fantastic earnings growth. Further, our global infrastructure investments continued, with our China distribution center becoming fully operational and excellent progress made on many other infrastructure and technology projects. We remain confident that as supply chain constraints ease, Skechers’ will be well-positioned to meet the tremendous consumer demand for our products.”

Nine Months 2021 Financial Results

  • Year-to-date sales increased 41.7 percent reflecting a 42.4 percent increase in domestic sales and a 41.2 percent increase in international sales with the largest contribution derived from International Wholesale growth. On a constant-currency basis, the company’s total sales increased 37.4 percent.
  • Sales grew across all segments with increases to domestic wholesale of 36.0 percent, international wholesale of 35.6 percent, and direct-to-consumer of 58.9 percent. Improvements in domestic wholesale were the result of higher unit sales volume. International wholesale had growth in China of 52.6 percent and Europe of 16.1 percent. Direct-to-consumer had higher units sold and higher average selling prices. Direct-to-consumer comparable same-store sales increased 45.0 percent, driven by an increase of 49.4 percent domestically and 33.4 percent internationally.
  • Gross margin increased 250 basis points to 49.6 percent primarily driven by increased gross margins in the direct-to-consumer segment, which was the result of increased average selling prices and reduced promotional activity.
  • Operating expenses increased by $334.6 million or 22.7 percent. Selling expenses increased by $117.3 million or 53.3 percent, primarily due to higher global advertising costs. General and administrative expenses increased by $217.3 million or 17.3 percent, primarily due to higher labor and incentive compensation costs, global warehouse and distribution expenses, and rent.
  • Earnings from operations increased from $429.1 million to $505.1 million.
  • Net earnings were $339.1 million and diluted earnings per share were $2.17.
  • The company’s effective income tax rate was 19.0 percent.

Balance Sheet
Cash, cash equivalents and investments totaled $1.18 billion, a decrease of $398.3 million, or 25.2 percent from December 31, 2020 primarily as a result of repaying $452.5 million on our revolving credit facility in the second quarter of 2021.

Total inventory was $1.23 billion, an increase of $213.6 million or 21.0 percent from December 31, 2020. Increased inventory levels primarily reflect growth in the International Wholesale segment and higher merchandise in transit due to supply chain challenges with shipping and port delays.

Outlook
For the fiscal year 2021, the company believes it will achieve sales between $6.15 billion and $6.20 billion and diluted earnings per share of between $2.45 and $2.50. Previously, Skechers had expected to 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 fourth quarter of 2021, it will achieve sales between $1.51 billion and $1.56 billion and diluted earnings per share of between $0.28 and $0.33.

Photo courtesy Skechers