Skechers USA Inc. late Tuesday reported a blowout first quarter, with worldwide strength across divisions driving its second highest quarterly revenues in the company’s 22-year history. But a potentially much bigger development came from a road race the day before.
At the 118th Boston Marathon, Skechers' star athlete, Meb Keflezighi, won the Boston Marathon. Wearing the new Skechers GOmeb Speed 3 shoes, Keflezighi broke his personal record with a time of 2:08:37, and was the first American male to win the Boston Marathon since Greg Meyer in 1983, and the first American since 1985. Keflezighi, who turns 39 next month, was also the oldest men’s champion in Boston since 1931.
Beyond those historical accomplishments, his win put an American touch on the world's grandest running event, one year after a terrorist bombing marred the storied race. Invoking the invoking the names of the Red Sox, Aerosmith and Martin Richard, the gracious Keflezighi became “Boston's Favorite Son” for the day, according to ABC News.
“A year ago I decided I wanted to win the 2014 Boston Marathon for the people of Boston and for the U.S.,” said Keflezighi. “When the Red Sox put the World Series trophy at the Boston Marathon finish line during the victory parade last year, I was inspired more than ever to come back and win. With the support of the Skechers Performance Division by my side every step of the way, today I have won for the city of Boston, and for the entire U.S.”
But the win could also become a breakthrough moment in the running category for Skechers, which only formed its Performance Division in 2011 when it launched the its GOrun line in a bold break from its lifestyle roots. Skechers' website on Monday quickly featured a banner-width, black-and-white photo of the runner with the tagline “Congratulations, Meb!” was also seen as a significant part of healing after
One of the many story lines around Meb who’s biggest prior feats were winning the 2009 New York City Marathon and earning a silver medal at the 2004 Olympic marathon was that Nike had dumped him as an endorser because he was too old.
“We are extremely excited, first for Meb and his family,” said Rick Higgins, VP of merchandising & marketing for the Skechers Performance Division, in an interview with Sports Executive Weekly. “Meb and our design/tech team have worked hard over the past few years to build great shoes for runners with our mid-foot strike technology. It's a great validation for the Skechers Performance Division as many people were initially skeptical about our seriousness entering the performance category. Meb achieving another new PR in Skechers Performance shoes, is icing on the cake!”
Since joining Skechers, Keflezighi has won more than five key races, including the U.S. Half Marathon Championship in Houston in January 2014, and the U.S. Olympic Trials in Houston in 2012. This past fall, Keflezighi extended his contract with the Skechers Performance Division through 2016.
Skechers running shoes have also earned over 20 awards and various mentions and awards by many of the critical running magazines. Most recently it received the Runner's World 2014 Best Buy Award for the Skechers GOrun Ride 3, Competitor Magazine's 2014 Best Value Award for the Skechers GOrun 3 and Triathlon Plus Magazine's 2014 Peak Performer and Gold Awards for the Skechers GOrun Ultra.
This year Skechers marked its first year as the official footwear and apparel sponsorship of the Chevron Houston Marathon, its first sponsored marathon. It also sponsors local grassroots events – from marathons to 10k's – since starting Performance Division to directly reach the running community. Said Higgins, “Watching consumers engage, try on and then run a marathon or half marathon in your product really highlights the acceptance and validation of the brand.”
Skechers overall running assortment has continued to expand. This season Skechers is offering updated generations of its GOrun platform, which will include GOrun 4 and GOrun Ride 4, and it’s adding a new neutral cushioned shoe called the Skechers GOrun STRADA. In the fall, it will be introducing the Gomeb Speed 3, the shoe worn by Meb. Meb will continue to appear of its efforts on the marketing side, an area where Skechers is known for its expertise over its 22-year history.
“Our focus right now will be to keep Meb in the forefront and continue to educate and advertise the mid-foot strike performance technology with TV, print, and our new custom YouTube channel, skechersgorun.com,” said Higgins.
Overall, Higgins said the running channel continues to gain a better understanding of Skechers focus on keeping its lifestyle business separate from the performance side while also noticing its commitment to the category.
“It just keeps growing,” said Higgins of its running push. “The support we have had from so many top specialty running shops around the world keeps creating more brand awareness and that helps to increase legitimacy within the overall brand.”
On the company’s first-quarter conference with analysts, David Weinberg, COO and CFO, said Skechers’ key product sales drivers were broad-based and came across its men's, women's, and kids offering, and included both lifestyle and performance products. Other successful newer platforms working include Skechers GoWalk, Relaxed Fit, Skechers Sport, and Skechers Kids Footwear.
“We actually have a lot of platforms that are working very, very well,” said Weinberg.
He further noted that the improvements were achieved despite Easter falling late in April and the “extreme cold weather” experienced in most of the U.S. throughout the quarter.
“With the increased demand for our products from consumers around the world, we believe the strong sales momentum that we are currently experiencing will continue through the second quarter and the full year,” said Weinberg. “Our April incoming order rate and revenues are very strong and our backlogs have accelerated since year-end. The reception from our key accounts to our new product offering gives us the confidence and the strength of our business.”
In the quarter Mar. 31, earnings jumped nearly five-fold to $31.0 million, or 61 cents a share, from $6.7 million, or 13 cents, a year ago. Results were nearly double the 33 cents a share on average expected by Wall Street analysts.
Revenues rose 21.0 percent to $546.5 million from $451.6 million a year ago, its greatest first-quarter gain and beyond management’s internal expectations. Wall Street’s consensus revenue estimate had been $503.1 million.
Domestic wholesale revenues rose 20.7 percent, or $39.9 million, in the period, with a 14.8 percent increase in pairs shipped and a 5.1 percent gain in average price. Said Weinberg, “Each of our team's divisions has produced strong sales drivers and allowed us to expand our offering. Key to this success has been the comfort innovations we have made across all of our brands.”
Double-digit gains were seen in men’s and women’s and “very high single-digit” increases in kids. The increases came from its men's and women's Skechers USA, sport and work lines, as well as its BOBS from Skechers and sport active lines for women.
The performance division was fueled by the mentions in running magazines, and Houston Marathon sponsorship. Weinberg likewise said the division expects to build on Meb’s Boston Marathon victory, which he described as “a major accomplishment, both for Meb and the brand.” Meb will continue to be the face of the Skechers performance division, currently appearing in marketing campaigns on TV, in print and outdoor.
Weinberg noted that while Skechers has always had a foothold in Modell’s, but the success on the performance side is helping Skechers gain some initial space in accounts such as Dick’s SG. He said, “We are taking it very slow, building it with Meb and some other runners, the high performance until there is a high enough demand to break into the sporting goods channel. So, right now, we are still at the very early stages, but obviously the possibilities are very, very large.”
He also added that while the GoWalk and the overall performance side skews women, “it is certainly getting traction in men's, especially from the performance end on the Go.”
Skechers domestic wholesale business was also supported by TV campaigns featuring TV personality Brooke Burke-Charvet, The Voice winner Danielle Bradbery, and sports icons Joe Montana, Tommy Lasorda, and Mark Cuban. With its continued expansion, BOBS has resulted in more than 8 million pairs of shoes donated to children in need.
“We are very pleased with the growth we achieved in our domestic wholesale division, especially given the cold winter much of the country experienced, and Easter moving to late April,” said Weinberg. “We believe the strong sales are attributable to our innovative product. And we believe that the demand will continue through the year based on our incoming orders, accelerating backlog, and reports from our wholesale partners.”
International was ahead 26.3 percent in the quarter across its subsidiary, joint venture, and distributor sales. Subsidiaries and joint ventures were ahead 27.7 percent. Distributor sales were up 21.9 percent despite political upheaval in the Ukraine and currency issues in the Ukraine and parts of South America.
Europe saw a “strong rebound,” with Skechers seeing “demand for our brand is at an all-time high across nearly every region where we directly distribute our product.” Double-digit growth was seen in all but two of its subsidiary countries there.
Its Southeast Asia joint venture were up 18.7 percent combined, led by more than a 50 percent hike in China. Its international distributor business also performed “much stronger than expected,” especially given the Easter shift and ongoing political and currency issues. The double-digit increase was primarily the result of triple-digit growth in Indonesia, Turkey, and Taiwan, and double-digit growth in Australia, New Zealand, South Korea, Mexico, and the UAE.
Opening retail stores is being seen as a particularly beneficial marketing and distribution tool overseas. At quarter’s end, it had 497 Skechers stores owned and operated by its joint ventures, licensees, and distributors outside the U.S.
Weinberg said its international product delivery “is moving more in step with our domestic delivery,” aiding to more cohesive approach globally but also meaning the momentum seen in the U.S. is also occurring in “virtually all international markets.” Based on accelerating backlogs and the opening of additional retail stores, Skechers’ international business is expected to be up double digits for the second quarter and the year.
At its owned retail stores, revenues grew 15.9 percent in the quarter. Domestic sales were ahead 10.7 percent and international grew 48.8 percent. Comps increased 5.8 percent domestically and 5.6 percent internationally. It ended the quarter with 399 company owned stores globally, including 10 opened in the quarter. It expect to open a total of 50 to 60 owned stores worldwide, as well as 80 to 90 through distributors, bringing total Skechers store network to 1,070 by year end.
Gross margins improved in the quarter to 44 percent of sales from 42.7 percent, reflecting the 5.6 percent increase in average price per pair.
Selling expenses were reduced to 160 basis points to 6.7 percent. Due to Easter falling later in Spring, a portion of its advertising expenses were shifted into the second quarter. General & administrative expenses were reduced 150 basis points to 29 percent as the sales leverage offset dollar increases tied to store openings.
Weinberg said that given its retail growth trajectory, accelerating backlogs and incoming orders for April and at-once business, which remains at the same levels as last year, Skechers remains comfortable with current consensus estimates for earnings in the second quarter, “though there may be some upside in the revenue forecast.”
Asked in the Q&A session, Weinberg noted that backlogs at the end of March are up north of 35 percent, with early BTS orders up to solid start. Said Weinberg, “And our booking rate for April has already exceeded last year, so chances are our backlog will increase as we end the year, unless something dramatic happens in the last week.”
