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Skechers' (SKX) Q3 Earnings Miss Estimates, Sales Rise Y/Y

In Q3, Skechers' (SKX) top and the bottom line increase year over year on growth across domestic and international channels, driven by strong wholesale and direct-to consumer sales.

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This story originally appeared on Zacks

Skechers U.S.A., Inc. SKX reported third-quarter 2021 results with both the top and the bottom line lagging the Zacks Consensus Estimate. However, both metrics improved year over year. This well-known footwear company gained from growth across domestic and international channels, driven by strong wholesale and direct-to-consumer sales.



During the quarter, the company witnessed higher demand for comfort products. The company achieved double-digit growth across all its reportable segments, backed by continued global demand for its Comfort Technology footwear. Moreover, the company’s investments in long-term growth strategies including brands and infrastructural capabilities have been encouraging for a while.



Management remains focused on developing comfort footwear, expanding apparel offering, advancing e-commerce capabilities and tapping opportunities to drive overall sales.

- Zacks

Let’s Analyze the Results

Skechers posted quarterly earnings of 66 cents a share, which increased from 41 cents earned in the year-ago quarter. On an adjusted basis, earnings per share came in at 68 cents. We note that the bottom-line figure came below the Zacks Consensus Estimate of 75 cents.



The company generated sales of $1,551.8 million, falling short of the Zacks Consensus Estimate of $1,636 million after nine straight quarters of beat. The top line jumped 19.2% year over year owing to a 20.1% increase in domestic sales and an 18.6% rise in international sales. On a constant-currency basis, total sales grew 17.1%. Management highlighted that the quarterly revenues represented the company’s second highest sales quarter in history.

Skechers U.S.A., Inc. Price, Consensus and EPS Surprise

Skechers U.S.A., Inc. Price, Consensus and EPS Surprise

Skechers U.S.A., Inc. price-consensus-eps-surprise-chart | Skechers U.S.A., Inc. Quote

Sales growth in the domestic and international channels was driven by strong wholesale as well as direct-to-consumer businesses, courtesy of the easing of pandemic-led restrictions. International wholesale segment sales rose 10.6% to $711.9 million, aided by strong growth in China, India and Distributor sales, somewhat offset by a decline in the European subsidiaries. Domestic wholesale sales climbed 10.1% to $350.7 million on the back of higher unit sales volume.



The company’s direct-to-consumer sales increased nearly 44% to $488.4 million, backed by growth across the international and domestic retail stores. Increase in the domestic direct-to-consumer business was backed by a 43% gain in the brick-and-mortar stores on higher traffic and normalized operating hours. Direct-to-consumer comparable same store sales jumped 31%, reflecting a rise of 33.7%, domestically and 25.1%, internationally.



Worldwide comparable same-store sales grew 31% including 34% growth, domestically, and 25% growth, internationally. Further, its domestic e-commerce business was mainly affected by limited product availability. The company’s joint venture business grew 5% in the quarter owing to a 10% rise in China along with solid sales in Mexico and Israel.

Looking at Margins

Gross profit increased 23.1% year over year to 769.4 million. Also, gross margin expanded 150 basis points (bps) to 49.6% owing to higher direct-to-consumer gross margin. Higher average selling prices, partly offset by declines in International Wholesale and Domestic Wholesale, resulted in margin expansion in the direct-to-consumer business.



Total operating expenses grew 18% year over year to $630.7 million but contracted 50 bps as a percentage of sales to 40.7%. Selling expenses increased 39% from the year-ago period’s tally to $119.8 million due to increased demand creation spend as the markets reopened globally. Also, general and administrative expenses jumped 13% to $510.9 million.



Earnings from operations came in at $146.2 million that rose significantly from $92.1 million in the prior-year quarter. Also, operating margin expanded 230 bps to 9.4%. Adjusted earnings from operations were $142.6 million in the reported quarter.

Store Update

During the third quarter, the company opened 10 company-owned stores including two in Columbia and one each in Peru, India, Germany and France. It also inaugurated a store in Downtown Los Angeles in a renovated historic building. This outlet marks the company’s first street location in the evolving urban center. Simultaneously, it shuttered one location in the quarter.



Additionally, net 119 third-party Skechers outlets were opened in the reported quarter in 28 countries with a net new 67 in China, 9 in India, 6 in Australia and 4 in New Zealand.



In the fourth quarter to date, it opened three stores including one in Naples, Italy. Management intends to open more shops at 15-20 locations by the end of 2021.



As of Sep 30, 2021, the company had 4,170 stores including 516 company-owned domestic stores, 344 company-owned international locations, 492 joint-venture stores and 2,818 distributor, licensee and franchise stores.

Other Financial Aspects

As of Sep 30, 2021, cash and cash equivalents totaled $952.1 million while short-term investments amounted to $90.6 million. The company ended the quarter with long-term borrowings (excluding current installments) of $282.8 million and shareholders’ equity of $2,841.5 million excluding non-controlling interests of $290.5 million. Further, total inventory was $1,230.3 million.



The company incurred capital expenditures worth $89.4 million during the third quarter. Management anticipates capital expenditures between $80 million and $110 million for the remaining year.

Outlook

Management revised guidance for 2021, given the supply-chain issues witnessed throughout the reported quarter. It believes that these headwinds will continue through the rest of the year and into the first half of 2022.



Skechers envisions fourth-quarter 2021 sales between $1.51 billion and $1.56 billion and earnings in the band of 28-33 cents a share.  The Zacks Consensus Estimate for sales and earnings for the fourth quarter is currently pegged at $1.47 billion and 30 cents, respectively.



For the final quarter, it expects gross margins to remain essentially flat with the year-ago period’s level as freight costs will greatly offset the improved pricing.



Skechers projected 2021 sales in the range of $6.15-$6.20 billion versus the earlier anticipation of $6.15-$6.25 billion. The company had reported sales of $4.6 billion in 2020. The Zacks Consensus Estimate for sales in 2021 is currently pegged at $6.20 billion.



For 2021, the company expects earnings per share in the band of $2.45-$2.50, down from the prior view of $2.55-$2.65. The company had reported earnings of 64 cents in 2020. The Zacks Consensus Estimate for 2021 earnings is pegged at $2.58, which is likely to witness downward revisions in the coming days.

Price Performance

Shares of this currently Zacks Rank #4 (Sell) company have lost 14.5% in the past three months compared with the industry's 2.5% dip.

Stocks to Consider

Steven Madden SHOO, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 56.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.



G-III Apparel Group GIII, currently carrying a Zacks Rank of 1, has a trailing four-quarter earnings surprise of 180.5%, on average.



Carter’s CRI, currently holding a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 21.1%.



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