After three straight quarters of negative earnings surprise, Skechers USA Inc (NYSE:SKX) made a sharp come back in the first quarter of 2017. The Manhattan Beach, California-based footwear retailer delivered quarterly earnings of 60 cents a share that surpassed the Zacks Consensus Estimate of 55 cents but declined 4.8% from 63 cents posted in the year-ago quarter due to higher operating expenses and negative impact of foreign currency translation on gross margins.
SKX reported net sales of $1,072.8 million that increased 9.6% from the year-ago quarter and also came ahead of the Zacks Consensus Estimate of $1,067 million, thus marking the second consecutive quarter of revenues beat. Sales for the quarter mainly gained from solid performances at the company’s international wholesale business and company-owned global retail operations.
Further, Skechers’ domestic eCommerce business contributed to sales growth in the quarter, registering a surge of 23.5%. The company currently operates eCommerce sites in Chile, Germany and the U.K., and has plans to launch additional sites in Spain and Canada.
Despite reporting better-than-expected results no major movement was noticed in SKX stock. Instead, shares fell 0.4% during after-market trading hours yesterday. It might be because investors remained apprehensive about the company’s year-over-year decline in the bottom line. We note that the company’s shares have declined about 21.5% in the past one year, underperforming the Zacks categorized Shoes & Retail Apparel industry’s fall of 6.8%. However, in the past three months the stock has gained 3.4%.
Gross profit for the reported quarter grew 10.3% to $476.5 million, while gross margin expanded 20 basis points (bps) to 44.4%. Operating income came in at $124.4 million, down 10.2% from the prior-year quarter, while as a percentage of net sales it decreased 260 bps to 11.6%.
The company concluded the quarter under review with low-double digit jump in backlog on a global basis. The company hinted that it had already attained high-single digit comparable-store sales (comps) growth at its company-owned retail stores in April, gaining from Easter and successful launch of YOU by Skechers in outlets and on skechers.com.
Consequently, management projects second-quarter 2017 net sales in the band of $950–$975 billion compared with $877.8 million reported in the prior-year quarter. The current Zacks Consensus Estimate for revenue is pegged at $970.8 million. Additionally, the company anticipates earnings per share in the range of 42-47 cents compared with 48 cents delivered in the year-ago period. The current Zacks Consensus Estimate for the quarter stands at 48 cents. SKX expects to deliver flat to slightly positive sales increase in the domestic wholesale business, and also envisions increases in its international business as well as company-owned retail stores.
Segmental Sales Synopsis
The domestic wholesale revenues remained flat compared with the prior-year quarter. The company shipped 4.5% more pairs compared with the prior-year period. However, average price per pair declined 4.8% on account of sturdy sales registered in lower-priced lines comprising BOBS from Skechers and sandal business.
Skechers’ international wholesale business revenues, which constituted 45.7% of total sales, advanced 16.8% on the back of a 17.6% rise in wholly-owned subsidiary and joint venture (JV) businesses and 12.5% growth in distributor business. The company’s JV business registered growth of 52.9% for the quarter buoyed by a 39.6% surge in China and 85.1% gain in India. The company’s JV business is gaining from the transition of distributors in Israel and South Korea in second-half 2016. These along with the transitioning of Latin American and Central Eastern European distributors to subsidiaries are likely to benefit international sales.
On a combined basis, global company-owned retail business sales grew 12.8% driven by higher store count and comps growth of 2.9%. Domestic retail sales rose 8.2%, while International retail sales surged 28%. Comps increased 1.5% at domestic retail stores and 8.2% at international retail stores.
SKX operated 584 company-owned retail outlets globally, comprising 162 international locations at the end of the quarter. During the quarter, the company opened 14 stores, including two concept stores in the U.K. So far in the second quarter of 2017, six company-owned outlets have been opened, comprising a concept store in Century City, CA, four outlets in Japan, and a store in Italy. Looking ahead, the company anticipates opening about 55–70 Skechers stores in 2017.
At the end of the quarter, Skechers also operated 1,471 branded stores internationally, owned and operated by JVs, franchisees and distributors. Of the total, 510 are distributor-owned or franchise retail stores; 830 Skechers stores in its JV countries, and 131 are franchised stores in countries where Skechers has subsidiaries.
During the quarter, 65 third-party owned stores were opened, including 35 stores in China, five in both India and Saudi Arabia, three in Turkey, two each in France, Indonesia and Japan, and one each in Curacao, Egypt, Italy, Mexico, Morocco, Nigeria, Paraguay, Philippines, Taiwan, Thailand, and UAE. Additionally, the company closed 19 third-party owned stores.
So far in the second quarter, Skechers has opened 15 third-party owned stores and closed two. The company plans to open a total of 425–475 third-party owned stores through the remainder of 2017.