Skechers’s Q3 Falls Short Of EPS Guidance

Article From：SGB Media


Skechers USA, Inc. reported sales in the third quarter ended September 30 ran up 20.5 percent, but earnings missed guidance amid margin pressures and foreign exchange currency headwinds. Skechers also provided guidance for the fourth quarter below Wall Street targets.

Third Quarter Highlights

    Record quarterly sales of $1.88 billion, a year-over-year increase of 20.5 percent;
    Wholesale sales grew 26.2 percent;
    DTC sales rose 11.9 percent;
    Diluted earnings per share of $0.55; and
    Skechers repurchased $25 million of common stock.

Sales of $1.88 billion topped company guidance between $1.80 billion and $1.85 billion. EPS of 55 cents missed company guidance in the range of 70 cents to 75 cents.

“Skechers’ ability to deliver record quarterly sales of $1.88 billion was a significant accomplishment, reflecting the ongoing global demand for our comfort technology products, which resulted in double-digit growth in our Wholesale and Direct-to-Consumer segments,” said David Weinberg, chief operating officer, Skechers. “All regions grew, led by EMEA with improvements of 48 percent as we realized growth across our largest European subsidiaries—Germany, Spain, and the United Kingdom, as well as strong distributor growth. The Americas achieved 16 percent growth primarily due to robust demand in the United States and Canada. In APAC, we experienced growth of 9 percent, which we are particularly pleased with, given the COVID-related challenges in China and Japan during the quarter. While this broad-based consumer demand for Skechers is not unique to this quarter, we believe our ongoing momentum and strong product offering is a testament to the strength of our brand and resilience as an organization.”

“As we celebrate our 30th year in business with three consecutive quarters of record sales, we are honored to be named Company of the Year by Footwear News for the third time. These notable achievements illustrate the ability and dedication of our entire organization to design, deliver and market the most comfortable and innovative footwear available,” said Robert Greenberg, CEO, Skechers. “We recognized a consumer’s need for comfort years ago and are a unique brand known globally for our comfort technology products. We are always looking for new opportunities to meet the needs of our customers, including the introduction of Skechers Hands-Free Slip-ins, the ultimate ready-to-go footwear.

“Our innovation continues to deliver results in Skechers Performance where our golfers are winning major championships, and pickleball athletes are scoring big wins in our footwear. In the quarter, we communicated these product attributes in targeted mediums—be it television commercials with Martha Stewart and Tony Romo, digital campaigns with global pop superstars like Ava Max and regional influencers, sponsoring major athletes on the court, course, mound, or track, and expanding our presence at stores around the world through window campaigns and shop-in-shops.

“As we continue to grow towards our goal of $10 billion in annual sales by 2026, we remain as focused and as dedicated as we were from the year we started Skechers. With three decades of experience, we will continue to approach each day as a new opportunity to be the best we can be at designing, marketing and delivering innovation and comfort to the world.”

Third Quarter 2022 Financial Results
Third-quarter sales increased 20.5 percent due to a 14.9 percent increase domestically and a 24.6 percent increase internationally, primarily driven by strength in Skecher’s wholesale sales.

All segments experienced growth, with Wholesale increasing 26.2 percent and DTC increasing 11.9 percent. On a constant-currency basis, sales increased by 27.3 percent.

Wholesale sales growth of $247.1 million, or 26.2 percent, was led by increases in EMEA of 58.8 percent and AMER of 18.1 percent. Wholesale volume increased 25.1 percent, and average selling price increased 1.4 percent.

DTC sales growth of $72.8 million, or 11.9 percent, was led by increases in AMER of 13.8 percent and APAC of 10.0 percent. DTC volume increased 11.1 percent, and the average selling price increased 0.6 percent.

Gross margin was 47.1 percent, a decrease of 280 basis points, primarily due to increased freight and logistics costs and a higher proportion of distributor sales, partially offset by average selling price increases.

Operating expenses increased $123.3 million, or 19.5 percent, and as a percentage of sales, improved 30 basis points to 40.1 percent.

Selling expenses increased $23.0 million, or 18.0 percent, due to higher global digital and brand demand creation expenditures.

General and administrative expenses increased $100.2 million, or 19.9 percent, and, as a percentage of sales, improved 20 basis points to 32.1 percent.

Increased expenses were primarily driven by Skechers domestic distribution center, where supply chain and logistics challenges drove higher labor and warehouse and distribution expenses.

Earnings from operations decreased $16.2 million, or 11.1 percent, to $130.0 million.

Net earnings were $85.9 million, and diluted earnings per share were $0.55, a decrease of 16.7 percent over the prior year. Diluted earnings per share include an unfavorable impact of $0.09 due to declines in foreign exchange rates, primarily in EMEA.

In the third quarter, the company’s effective income tax rate was 17.9 percent.

“Skecher’s record third-quarter sales reflect double-digit growth across our segments and in most countries. These results are a testament to the demand for our comfort technology products,” said John Vandemore, CFO, Skechers. “Despite multiple macroeconomic headwinds, from foreign exchange rates to supply chain challenges and ongoing COVID-related lockdowns, we remain focused on our long-term growth strategy. We are encouraged that demand remains strong, and as these headwinds moderate, we expect to see continued revenue growth and improved operating leverage.”

Nine Months 2022 Financial Results
Year-to-date sales increased 19.6 percent, reflecting a 19.3 percent increase domestically and a 19.8 percent increase internationally, with the largest contribution derived from our wholesale sales. Both segments experienced increases, with Wholesale increasing 25.6 percent and DTC increasing 10.0 percent. On a constant-currency basis, the company’s total sales increased 23.8 percent.

Wholesale sales growth of $731.4 million, or 25.6 percent, was led by increases in AMER of 31.7 percent and EMEA of 34.8 percent. Wholesale volume increased 20.8 percent and average selling price increased 4.4 percent.

DTC sales growth of $179.6 million, or 10.0 percent, was led by increases in AMER of 9.3 percent, EMEA of 27.6 percent, and APAC of 6.7 percent. DTC volume increased 3.4 percent, and the average selling price increased 6.3 percent.

Gross margin was 46.8 percent, a decrease of 290 basis points, primarily due to higher freight and logistics costs and an increased mix of wholesale sales, partially offset by average selling price increases.

Operating expenses increased $334.5 million or 18.5 percent. As a percentage of sales, operating expenses improved 40 basis points to 38.6 percent. Selling expenses increased $65.0 million or 18.0 percent, primarily due to higher global demand creation expenditures.

General and administrative expenses increased $269.5 million or 18.6 percent, primarily due to higher labor costs and global warehouse and distribution expenses.

Earnings from operations decreased $45.1 million to $460.0 million.

Net earnings were $297.5 million, and diluted earnings per share were $1.90, a decrease of 12.4 percent over the prior year. Diluted earnings per share include an unfavorable impact of $0.23 due to declines in foreign exchange rates, primarily in EMEA.

The company’s effective income tax rate was flat year-over-year at 19.8 percent.

Balance Sheet
Cash, cash equivalents and investments totaled $681.5 million, a decrease of $358.9 million, or 34.5 percent, from December 31, 2021, primarily due to ongoing investments in working capital, mainly inventory, and completed $74.2 million of share repurchases year-to-date.

Inventory was $1.78 billion, an increase of $308.4 million or 21.0 percent from December 31, 2021. Increased inventory levels primarily reflect growth in AMER.

Share Repurchase
During the quarter, the company repurchased nearly 639,295 shares of its Class A common stock for $25.0 million. Year-to-date 2022, Skechers repurchased 1.9 million shares of its Class A common stock at the cost of $74.2 million. At September 30, 2022, approximately $425.8 million remained available under the company’s share repurchase program.

Outlook
For the fourth quarter of 2022, the company believes it will achieve sales between $1.725 billion and $1.775 billion and diluted earnings per share of between $0.30 and $0.40. Wall Street’s consensus estimates for the fourth quarter had called for sales of $1.81 billion and EPS of 52 cents.