Shares of Skechers USA, Inc. SKX surged 12.7% during the after-market trading session on Jul 18, following the company's remarkable second-quarter 2019 results. Both the top and bottom lines surpassed the Zacks Consensus Estimate as well as increased year over year. In fact, this was the fourth straight quarter of positive earnings surprise. Impressive performance prompted management to provide an upbeat view for the third quarter.
This designer, developer, marketer and distributor of footwear posted quarterly earnings of 49 cents a share. The figure not only outpaced the Zacks Consensus Estimate of 33 cents but also increased substantially from 29 cents reported in the year-ago period.
Management guided third-quarter 2019 earnings in the range of 65-70 cents a share, whose mid-point of 67.5 cents is above the current Zacks Consensus Estimate of 65 cents. The company had reported earnings of 58 cents in the third quarter of 2018.
This Zacks Rank #1 (Strong Buy) company generated net sales of $1,258.6 million that increased 10.9% (or 13.7% on a constant currency basis) from the year-ago quarter and also beat the Zacks Consensus Estimate of $1,217 million.
The company now anticipates third-quarter 2019 net sales in the band of $1.325-$1.350 billion, up from $1.176 billion reported in the prior-year quarter. The Zacks Consensus Estimate for sales for the third quarter is $1.31 billion.
The company's international wholesale and direct-to-consumer businesses acted as the primary catalysts. Management informed that the company witnessed growth across all regions with prominent markets being India, the Middle East and China. Moreover, the joint venture in Mexico with its distribution partner is performing well. The company is making strategic investments to improve its infrastructure worldwide, primarily e-commerce platforms and distribution centers. The company is also focusing on designing and developing of new products for the next year.
Certainly, the earnings beat streak and strategic endeavors have led the shares of Skechers to surge 31% in the past six months, comfortably outperforming the industry 's growth of 9%.
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
Let's Delve Deep
Skechers witnessed sales growth of 19.8% across its international business and 1.5% in its domestic business. The company's international wholesale business grew 18.2%, while company-owned global direct-to-consumer business rose 14.4%.
The company's international wholesale business improved on account of 30.7% increase in distributor business, a 13.4% jump in joint ventures and an 18.5% growth in wholly owned subsidiaries.
Management expects international and direct-to-consumer businesses to sustain growth momentum and increase at a mid-teen and high single-digit rate, respectively, in the remaining part of the year.
The company's domestic wholesale business fell 3.8%. However, we note that the rate of decline has decelerated from 10.9% witnessed in the preceding quarter. The company anticipates domestic wholesale business to be flat to slightly positive on a full-year basis.
Comparable store sales in company-owned stores and e-commerce jumped 4.9%, comprising 4.2% in the United States and 6.7% internationally.
Gross profit for the reported quarter grew 8.7% to $609.8 million. However, gross margin contracted 90 basis points to 48.5% on account of promotional efforts to clear seasonal merchandise in select international markets. This was to an extent offset by higher domestic margins due to improved retail pricing and product mix in direct-to-consumer and domestic wholesale businesses.
Operating income came in at $111.1 million, up 36.5% from the prior-year quarter, while operating margin increased 160 basis points to 8.8%.
Other Financial Aspects
Skechers ended the reported quarter with cash and cash equivalents of $779.3 million, long-term borrowings (net of current installments) of $100 million, and shareholders' equity of $2,132.9 million, excluding non-controlling interest of $190.8 million.
During the quarter, the company bought back roughly 511,000 shares at a cost of $15 million under its existing share buyback program. The company still has approximately $20 million as of Jun 30, 2019.
Management incurred capital expenditures of roughly $86.2 million during the quarter and plans to spend approximately $150-$175 million in the remaining part of the year.
During the quarter, Skechers opened four company-owned domestic stores and closed one taking the total count to 477. Again, eight company-owned international stores were opened, while one was shuttered, which took the count to 291. Further, the company ended the quarter with 306 joint-venture stores and 2,098 distributor, licensee and franchise stores. Total store count at the end of the quarter was 3,172.
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