Skechers USA Inc.
) kick-started 2014 as its top and bottom lines for the first
quarter surpassed the Zacks Consensus Estimate and recorded
year-over-year growth as well. Furthermore, the company set
records of reporting the highest sales ever for the first quarter
and second highest quarterly sales in its 22-year history of
operation. Driven by the stellar results, shares of this footwear
retailer rose approximately 13.9% in the after-market trade hours
First-quarter earnings of 61 cents a share was favorable when
compared to the Zacks Consensus Estimate of 33 cents. Moreover,
the reported figure rose over fourfold from 13 cents in the
prior-year quarter. The improved results were owing to strong
top-line growth, effective cost management and a shift in a
portion of advertising expenses to second quarter as Easter falls
in April this year.
Increased demand for products, product innovation across
multiple categories and healthy performance across all revenue
channels led to a 21% rise in revenues to $546.5 million in the
first quarter, which surpassed the Zacks Consensus Estimate of
With increased focus on the new line of products, cost
containment, inventory management, global distribution platform,
healthy Apr 2014 order rates and backlogs, the company is
confident of sustaining the growth momentum throughout 2014.
Gross profit for the quarter soared 24.7% to $240.4 million
while gross margin increased 130 basis points (bps) to 44.0%. The
growth was primarily driven by increased sales and a favorable
Earnings from operations for the quarter increased over
twofold year over year to $48.2 million while as a percentage of
sales, it improved 540 bps to 8.8%.
Notably, the company's effective tax rate increased
substantially to 25.7% from 23.1% in the year-ago quarter due to
inclusion of certain discrete items. Further, the company has
lowered its upper-end tax rate projection to 28% from the earlier
30%. Therefore, Skechers now anticipates effective tax rate for
2014 in the range of 25%-30%.
Segmental Sales Synopsis for Q1
The domestic wholesale business marked a revenue increase of
20.7%, reflecting a jump of 14.8% in pairs shipped that benefited
from relentless product development initiatives across multiple
lines and an increase of 5.1% in the average price per pair. The
company's Lifestyle lines gained from double-digit sales growth
at its women's and men's lifestyle product lines while sales at
the SKETCHERS Kids division registered single-digit growth.
Moreover, the company's Performance Division remained strong with
double-digit rise in sales.
Skechers' international business revenue increased 26.3% on
the back of a 27.7% rise in international subsidiary and joint
venture (JV) sales as well as an improvement of 21.9% in
distributor sales. Though tough macroeconomic conditions in
several key markets impacted Skechers' international distributor
business, the company's partners in Indonesia, Mexico, Turkey,
Taiwan, South Korea, New Zealand, the UAE and Australia
Looking ahead, this Zacks Rank #3 (Hold) company expects the
momentum witnessed in the first quarter in subsidiary and JVs to
continue in the second quarter and last throughout fiscal 2014.
Further, Skechers anticipates flat distributor sales in the first
quarter but forecasts growth for the full year.
On a combined basis, retail business sales grew 15.9%.
Domestic retail sales rose 10.7% while comparable-store sales
(comps) increased 5.8%. International retail sales soared 48.8%
and comps climbed 5.6%.
On the domestic front, the company triumphed over the
unusually cold weather that impacted its retail business and the
shift of Easter to the second quarter.
Skechers had 399 retail stores and 497 distributor, JV and
licensed stores under operation at the end of first-quarter 2014,
bringing the total store count to 896. At the quarter-end, the
company's distributor, JV and licensed stores comprised 140
outlets under JVs in Asia, including stores operated by
licensees, 327 distributor-owned or licensed Skechers retail
stores globally and 30 company-licensed locations in Brazil,
Canada, Spain, France, Portugal and Ireland.
During the first quarter, the company opened 10 stores,
including 9 domestic stores and 1 international outlet. These
comprise new concept stores in New York, Arizona, Puerto Rico,
Maryland, Florida, Nebraska, Maine and Chile. Further, the
company closed 1 domestic concept store in the quarter.
So far, in the second quarter of 2014, Skechers has opened 3
outlets, one new concept store each in New Jersey, Ohio and
Texas. Going forward, the company plans to open 15-17 retail
stores in the remainder of the second quarter and about 30 more
stores across the globe in 2014.
During the first quarter, Skechers opened 22 distributor, JV
or licensed stores, which included the company's first store in
Belarus and 3 stores each in Saudi Arabia and Philippines, 2 each
in India, Taiwan and Malaysia and 1 each in Costa Rica, Croatia,
France, Mexico, Brazil, Wales, Russia, South Korea and
So far, in the second quarter of 2014, Skechers has opened 4
distributor JV outlets. Going forward, the company plans to open
about 80-90 more stores in 2014 across the globe and bring the
distributor JV store count to about 600.
Overall, the company targets to increase its store count to
about 1,070 by the end of 2014.
Management remains committed to its focus on new lines of
products, opening additional Skechers stores and increasing
distribution channels with the development of international
distribution agreements to boost sales and profitability.
Moreover, Skechers' international business remains a significant
sales growth driver for the company. Moreover, through its
distribution networks, subsidiaries and JVs, Skechers is poised
to enhance its global reach in the footwear market.
Other Financial Aspects
Skechers, which competes with
Deckers Outdoor Corp.
), ended first-quarter 2014 with cash and cash equivalents of
$329.4 million, long-term debt of $113.4 million and
shareholders' equity of $963.0 million, excluding non-controlling
interest of $50.3 million. Capital expenditures for the first
quarter were approximately $11.4 million.
Other Stocks to Consider
A better-ranked stock worth considering in the shoe space is
Brown Shoe Co. Inc.
), which sports a Zacks Rank #2 (Buy).
BROWN SHOE CO (BWS): Free Stock Analysis
DECKERS OUTDOOR (DECK): Free Stock Analysis
NIKE INC-B (NKE): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis
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