Skechers USA Inc . ( SKX ),
which has been grappling with the clearance of its excess toning
inventory, is now showing signs of improvement as evident from its
recently reported third-quarter 2012 results.DECKERS OUTDOOR (DECK): Free Stock Analysis
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The company delivered earnings of 22 cents a share, which is a
substantial improvement from the earnings of 17 cents in the
year-ago quarter. However, earnings fell short of the Zacks
Consensus Estimate of 25 cents.
With more emphasis on a new line of products, cost containment
efforts, inventory management, margin improvement and upcoming
holiday season, the company anticipates sustaining the growth
momentum in the fourth quarter of fiscal 2012 and thereafter.
Skechers, which competes with Deckers Outdoor
Corporation ( DECK ) and Nike Inc . ( NKE ),
stated that total net sales for the quarter strengthened 4.2% to
$429.4 million from the prior-year quarter, reflecting healthy
performance across company owned retail businesses, domestic
wholesale and international distributor. Moreover, total revenue
came marginally ahead of the Zacks Consensus Estimate of $429
The domestic wholesale business marked an elevation of 7.2%,
reflecting a 9.1% increase in pairs shipped coupled with a strong
growth across kids and performance divisions.
International distributor sales experienced a growth of 10.9%,
reflecting strong growth across Pan-Asian distributors, Middle
East, Indonesia, Philippines, South Korea, Taiwan, New Zealand and
Australia. However, International subsidiary sales declined 14.6%,
reflecting a difficult comparison as the prior-year quarter
witnessed strong sales.
Moreover, a challenging economic climate in Europe and
restructuring of the Brazilian business adversely impacted the
business. However, management hinted that the subsidiary business
will be accretive to the company's growth in the coming
On a combined basis, retail business sales grew 13.9%. Domestic
retail sales escalated 13.2% due to the addition of 23 new stores,
while comparable-store sales increased 6.3%. International retail
sales bolstered 18% reflecting the healthy performance of 4 new
stores, whereas comparable-store sales remained flat.
The company's licensing division has been another source of
revenue, whereby the company licenses its name and images. The
company generated $1.8 million in revenue during the quarter from
its licensing affiliates, which includes apparel, eye wear,
watches, backpacks, and socks.
Another highlight of the quarter was the 22% rise in the company's
e-commerce division. Though the company uses it as a marketing
tool, the division remains successful in driving incremental sales
during the quarter.
The quarter exhibited a marked improvement in the gross profit,
which increased 7.2% to $187.8 million. Moreover, gross margin
expanded by 120 basis points to 43.7% attributable to a rise in
sales volume, enhanced inventory and strong product sales at retail
Income from operations came in at $20.3 million, a sharp
improvement from $2.2 million witnessed in the year-ago quarter.
The improvement reflects lower Selling and General and
administrative expenses on account of lower promotional
expenditures and effective cost management.
During the quarter, Skechers opened 23 domestic stores and 4
international stores, bringing the total company-owned Skechers
retail stores count to 346.
At the end of the quarter, the company operated more than 100
outlets under joint ventures in Asia, including stores operated by
licensees, and 237 additional distributor-owned or licensed
Skechers retail stores worldwide.
During the quarter, Skechers opened 25 Skechers stores, including
one each in Mexico, Hong Kong, Costa Rica and Ireland. In U.A.E.,
Indonesia and Australia, the company opened two stores each coupled
with 15 stores in South Korea. Moreover, the company closed two
stores during the quarter, one each in Costa Rica and the Baltics
and ended the quarter with 72 freestanding Skechers stores.
Management remains committed to focus on new lines of products and
opening of additional Skechers stores and increasing distribution
channels with the development of international distribution
agreements to boost its sales and profitability.
Moreover, international business remains a significant growth
driver for the company's sales. Management projects international
sales to pick up in the coming quarters and expects to keep up the
momentum in fiscal 2013. Moreover, Skechers expects to double its
company-owned subsidiary business in Japan over the next 3 to 5
Skechers, through its distribution networks, subsidiaries and
joint ventures, is poised to enhance its global reach in the
footwear market. Skechers' joint ventures in Asia are portraying
improvement with sales growth across Taiwan, Hong Kong, South Korea
The company is sincerely striving to reposition itself for 2012
and beyond. These include lowering of selling and marketing
expenses, consolidating North American distribution facilities
under one roof, streamlining inventory, and new product
Other Financial Aspects
Skechers portrays a healthy balance sheet with cash and cash
equivalents of $307.9 million, long-term debt of $70.2 million and
shareholders' equity of $872.8 million, excluding non-controlling
interest of $43.5 million at the end of the quarter. Capital
expenditures for the quarter were approximately $5.6 million.
Currently, we maintain a long-term 'Neutral' recommendation on the
stock. Moreover, Skechers holds a Zacks #3 Rank that translates
into a short-term 'Hold' rating.