Skechers Misses, Reverts to Earnings - Analyst Blog

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Skechers USA, Inc. ( SKX ) posted first-quarter 2013 earnings of 13 cents a share compared with a loss of 7 cents delivered in the prior-year quarter on the back of growth witnessed across domestic wholesale, international, company-operated retail businesses and e-Commerce operations.

However, the bottom-line results missed the Zacks' expectations of 18 cents a share. Management stated that the quarterly earnings were hurt by 8 cents a share due to foreign currency translation loss of $3 million and a credit of $2.5 million to an account that bought a major part of excess toning inventory way back in 2011.

Let's Unveil the Picture


Skechers, which competes with Deckers Outdoor Corporation ( DECK ), stated that total net sales for the quarter surged 28.6% to $451.6 million from the prior-year quarter, reflecting increased demand of products and healthy performance across all revenue channels. Moreover, total revenue outpaced the Zacks Consensus Estimate of $442 million.

With more emphasis on the new line of products, cost containment efforts, inventory management and global distribution platform, the company anticipates sustaining the growth momentum in 2013. Skechers hinted at significant growth in the third quarter in comparison to the second quarter due to early Easter on Mar 31 this year, and back-to-school deliveries going into the third quarter of 2013.  

The domestic wholesale business marked an elevation of 44%, reflecting a jump of 47.1% in pairs shipped coupled with strong performance across men's, women's and kids' divisions. The company's Performance Division portrayed an exceptional performance attributable to Skechers GOrun, Skechers GOwalk, Skechers GOrun Ride, and Skechers GOrun2. The company has also introduced Daddy's Money for Juniors and SKCH+3 product lines.

Skechers' international business soared 20.7% on the back of 29.9% growth in international distributor business and an 18.1% rise in international subsidiary and joint venture sales. The tough macroeconomic conditions weighed upon the company's performance in Spain and Italy. However, Italy is now witnessing a soft recovery. Pan-Asia region (including Japan), Russia, Scandinavia, the Baltics, Turkey, Greece, Philippines, South Korea, Australia/New Zealand, Middle East and Africa all portrayed growth momentum.

Management now expects its international business to remain even in the second quarter due to early Easter and booking trends, but hinted sustained growth from the third quarter.

On a combined basis, retail business sales grew 16.9%, whereas comparable-store sales advanced 12.2%. Domestic retail sales rose 16.2%, while comparable-store sales increased 11.3%. International retail sales jumped 21.6%, whereas comparable-store sales climbed 19.4%.

The company's licensing division has been another source of revenues, whereby the company licenses its name and images. The company generated $1.8 million in revenues during the quarter from its licensing affiliates, which include apparel, eyewear, backpacks, and socks.

Another highlight of the quarter was a 24% rise in sales from 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 major improvement in gross profit, which soared 23.8% to $192.7 million, reflecting higher sales volume, enhanced inventory and contemporary products. However, gross margin shriveled 160 basis points to 42.7%. The contraction in gross margin was due to lower selling price, product mix and offloading of inventory at a discount.

Stores Update

Skechers had 353 retail stores under operation at the end of the first quarter. The company during the quarter opened 1 store each in Puerto Rico, Utah, Fla., and Glasgow. The company shuttered 5 outlets in the quarter. So far, in the second quarter of 2013, Skechers has opened one outlet in Puerto Rico, one in Phoenix, and its first store in Santa Barbara. A new location was inaugurated in Japan, bringing the total count to 4. The company plans to open 3 more stores and close 5 outlets during the second quarter. For the remaining part of the year, the company anticipates opening 28 to 32 outlets.

At the end of the quarter, the company operated 118 outlets under joint ventures in Asia, including stores operated by licensees, 260 distributor-owned or licensed Skechers retail stores globally, and 21 company-licensed locations in Canada, Spain, Portugal, Ireland, and the Netherlands.

During the quarter, Skechers' under its joint ventures and through its franchisees and distributors, opened 10 outlets, which included 2 each in South Korea, China, and Hong Kong, and 1 each in Saudi Arabia, the Philippines, Denmark, and Lebanon. The company now operates 75 stores in South Korea and 56 in China. So far in the second quarter, the company has opened 12 outlets with 20 more on the cards. In the first quarter, the company shuttered 5 outlets, 1 in Indonesia and 4 in Russia. In the second quarter, 1 location was closed in Singapore.

Strategic Initiatives

Management remains committed to focus on new lines of products, 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. Skechers, through its distribution networks, subsidiaries and joint ventures, is poised to enhance its global reach in the footwear market.

Other Financial Aspects

Skechers ended the quarter with cash and cash equivalents of $264.7 million, long-term debt of $125.5 million and shareholders' equity of $883.1 million, excluding non-controlling interest of $46.1 million. Capital expenditures for the quarter were approximately $7.8 million.

Zacks Rank for Skechers

Currently, Skechers carries a Zacks Rank #4 (Sell). However, there are certain other stocks in the consumer discretionary sector that warrant a look, such as Iconix Brand Group, Inc. ( ICON ), which carries Zacks Rank #1 (Strong Buy) and Francesca's Holdings Corporation ( FRAN ), which holds a Zacks Rank #2 (Buy). Both the stocks are expected to continue with their upbeat performances.



DECKERS OUTDOOR (DECK): Free Stock Analysis Report

FRANCESCAS HLDG (FRAN): Free Stock Analysis Report

ICONIX BRAND GP (ICON): Free Stock Analysis Report

SKECHERS USA-A (SKX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: DECK , FRAN , ICON , SKX

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