Aided by increasing acceptance of its performance offerings, Skechers USA, Inc. reported revenues rose 28.6 percent in the first quarter, to $451.6 million. Earnings reached $6.7 million, or 13 cents a share, rebounding from a loss of $3.7 million, or 7 cents, in the same period a year ago.
The gains were driven by double-digit growth in all revenue channels – domestic wholesale, international, and company-owned retail businesses, said David Weinberg, COO and CFO, on a conference call with analysts.
In its domestic wholesale business, sales increased 44 percent, due to double-digit improvements in its men’s, women’s, and kids lines; and a 47.1 percent increase in pairs shipped. Nearly every product line experienced double-digit growth in the quarter, including its men’s and women’s Skechers GO, Skechers Sport, and Skechers USA lines; and its women’s BOBS and Active lines.
The Performance Division continued to perform exceptionally well, according to Weinberg, particularly its Skechers GOwalk line for women, On the GO for men, and Skechers GOrun 2 for men and women. Said Weinberg, We believe sales of our performance footwear were positively impacted by our humorous Skechers GOrun 2 Super Bowl commercial, which pitted man against cheetah. We received a lot of media attention, placing in the top 10 in several Super Bowl advertising polls. We continue to air this commercial and a new spot for Skechers GOwalk to support our spring business.
Commercials around women’s Sport Flex Memory Foam, BOBS from Skechers, Daddy’s Money, SKCH Plus 3, and men’s Relaxed Fit supported its lifestyle offerings. Skechers did note that cooler temperatures in much of the country impacted its sandals business.
Looking head, Weinberg said the company was encouraged by April meetings with key domestic accounts, who gave us both positive feedback on our current product in the market, the product they have on order, and future plans.
Skechers total international subsidiary, joint venture, and distributor sales increased by 20.7 percent, with its subsidiary and joint venture sales improving by 18.1 percent, and its distributor sales by 29.9 percent. Eight out of its 11 regions improved in the quarter. Particularly strong performances were seen in Canada, Brazil, China, Hong Kong, Southeast Asia, Middle East and Africa.
Weinberg indicated that company remains cautious about several European countries, including Spain and Italy, although Italy showed small improvement in the first quarter. Economic conditions also challenged several distributors serving select Eastern European countries.
Total sales in its company-owned retail business increased 16.9 percent, with domestic sales improving 16.2 percent, and international sales by 21.6 percent. Combined comps climbed 12.2 percent, with domestic ahead 11.3 percent and international up 19.4 percent. Domestic comps also accelerated in April, Weinberg added.
Gross margins eased to 42.7 percent from 44.3 percent a year ago. The decline was due to a shift in product mix that resulted in slightly lower ASPs and the clearance of some inventory at lower margin. The company also agreed to a pre-tax $2.5 million credit to an account that had purchased a significant portion of its excess toning inventory in 2011, impacting gross margins in the latest quarter by 50 basis points. Going forward, it continues to expect gross margins to be in the 42 percent to 44 percent range.
SG&A expenses were reduced to 8.3 percent of sales, compared to 8.6 percent due to the sales leverage. The bottom loss was also impacted by foreign currency translation pre-tax loss of $3.0 million tied to intercompany investments in its foreign subsidiaries.
Weinberg noted that with Easter falling in the first quarter this year and with the potential for back-to-school delivery shifting into the third quarter, we expect growth to be significantly stronger in the third quarter than in the second quarter.
