Skechers USA, Inc. set a new quarterly sales record in the first quarter ended March 31 but the mid-single-digit sales growth was not enough to offset the bad taste in Wall Street’s mouth after a miss on earnings estimates.

Earnings per share came in at 71 cents in Q1, missing Wall Street consensus estimates for 73 cents (adjusted). Shares of Skechers fell $3.68, or 10.4 percent, to $31.60 on Thursday.

The footwear brand was up against a year- ago period that included an earlier Easter but still managed to post positive sales growth, driven by 15 percent growth in the International business on a currency-neutral basis that more than offset a double-digit decline in the U.S. wholesale business.

Total company sales grew 2.1 percent to $1.28 billion in the first quarter, reflecting a 5.2 percent gain in currency-neutral terms. The mid-teen currency-neutral sales growth resulted in a 9.3 percent increase on a reported basis.

The Skechers International wholesale business increased 8.7 percent in Q1. Wholly-owned subsidiary sales grew by 2.4 percent, joint venture sales were up 10 percent and distributors grew 36.3 in the period. Within subsidiaries, management reported that “significant” dollar gains came from Germany, Spain, India and Japan and in SKX joint ventures China, Singapore and South Korea. China remains the largest country within the company’s International portfolio with approximately 1.1 million pairs shipped in the quarter.

The Skechers domestic business shrank 6.3 percent in the quarter, exacerbated by a 10.9 percent decline in the U.S. wholesale business in the 13-week period. Still, on a conference call with analysts, management said the domestic wholesale men’s business was particularly strong in the quarter, including gains in the core men’s sport and casual categories. SKX also reportedly saw strong growth in the men’s and women’s work division and its charitable BOBS from Skechers lines.

The company-owned global retail business grew 6.7 percent in the first quarter.

The U.S. Direct-to-Consumer business grew 3.3 percent in Q1, kept in positive territory by a 35.3 percent increase in domestic e-commerce sales. Comp store sales including e-commerce was slightly positive, eking out 0.2 percent growth for the quarter. SKX had 474 company-owned

Skechers retail stores in the U.S. at quarter- end. In the first quarter the company opened eight stores and closed four doors. Skechers expects to open an additional 30 to 35 Skechers stores in the U.S. this year.

Overall comparable same-store sales in owned-retail stores and e-commerce grew 0.7 percent in the quarter, with the anemic growth in the U.S. bolstered a bit by 2.3 percent sales growth internationally. The International trend excludes 61 stores in India that recently transitioned from third-party to Skechers ownership.

Company COO David Weinberg said Skechers shipped a record number of pairs from its distribution centers in Japan and Europe in the first quarter, and the company saw strong growth within its international distributors and joint ventures, including China. Weinberg also indicated that the International side now represents 57.8 percent of the overall Skechers business.

Gross margins were reportedly “slightly lower” as improved margins in the U.S. owned-retail business were offset by “lower international margins from higher discounts and negative foreign exchange impacts.”

Domestic wholesale gross margins were flat while domestic retail margins increased 260 basis points due to improved pricing and a decrease in promotional activity.

SKX net income came in at $108.8 million, or 71 cents per diluted share, compared to $117.7 million, or 75 cents per diluted share, in the prior-year quarter.

Total inventory was $740.9 million at quarter-end, a 7.4 percent decrease versus the 2018 quarter-end.

Looking ahead, SKX sees second quarter sales in the range of $1.20 billion to $1.225 billion, with diluted earnings per share in the 30 cents to 35 cents per share range.

Image courtesy Skechers