Skechers USA Inc.SKX delivered positive earnings surprise in the final quarter of 2017, marking the second successive beat. This Manhattan Beach, CA-based company recorded quarterly earnings of 21 cents a share that beat the Zacks Consensus Estimate of 13 cents, and increased significantly from 4 cents reported in the year-ago period buoyed by improved top-line performance.
The company reported net sales of $970.6 million that surged 27% from the year-ago quarter and also came ahead of the Zacks Consensus Estimate of $879.1 million for the fifth straight quarter.
We also note that both the top and bottom lines comfortably surpassed management's guidance of $860-$885 million and 9-14 cents a share, respectively. Following the company's sturdy performance, shares of this designer, marketer and distributor of footwear rose 3.2% during after-market trading hours yesterday. We note that the stock has increased 37.5% in a year compared with the industry 's growth of 12.9%.
Sales for the quarter mainly gained from healthy performances at the international wholesale business, company-owned global retail business and domestic wholesale business. Skechers witnessed robust holiday season on account of higher demand for innovative lighted children's footwear and comfortable adult styles. The quarterly results were favorably impacted by $20-$25 million of shipments originally planned for the first quarter.
Skechers' domestic e-commerce business contributed to sales growth in the quarter, registering an increase of 28.2%. The company currently operates e-commerce sites in Chile, Germany, UK, Spain and Canada.
Gross profit for the reported quarter grew 27.5% to $454.1 million, while gross margin expanded 20 basis points (bps) to 46.8%. Operating income came in at $55.7 million that nearly doubled from the prior-year quarter, while operating margin increased 200 bps to 5.7%.
Management now projects first-quarter 2018 net sales in the band of $1,175-$1,200 million compared with $1,072.8 million reported in the prior-year quarter. Additionally, the company anticipates earnings per share in the range of 70-75 cents compared with 60 cents delivered in the year-ago period. The current Zacks Consensus Estimate for the quarter is pegged at 81 cents.
Skechers U.S.A., Inc. Price, Consensus and EPS Surprise
Segmental Sales Synopsis
The domestic wholesale revenues rose 11.6% year over year. The company shipped 13.9% more pairs compared with the prior-year period. However, average price per pair declined 2%.
Skechers' international wholesale business revenues, which constituted 41.5% of total sales, advanced 40.2% on the back of a 53.6% rise in wholly-owned subsidiary and joint venture (JV) businesses and 3.1% growth in distributor business. The company's JV business registered growth of 58.9% for the quarter.
On a combined basis, global company-owned retail business sales grew 25.8% driven by higher store count and comps growth of 12%. Domestic retail sales rose 15.2%, while International retail sales surged 53.5%. Comps increased 10.5% at domestic retail stores and 16.5% at international retail stores.
Skechers operated 645 company-owned retail outlets globally, comprising 196 international locations at the end of the quarter. During the quarter, the company opened 22 stores. Looking ahead, the company anticipates opening additional 75-85 company-owned SKECHERS stores and remodel or relocate 15-25 existing stores.
During the quarter, 146 third-party owned stores were opened, including 74 in China, 22 in India, seven in Indonesia, five each in Australia, Singapore, Thailand and Turkey, three in Spain, two each in France, Malaysia and Portugal and one each in Brazil, Denmark, Estonia, Hong Kong, Lebanon, New Zealand, Paraguay, Philippines, St. Lucia, Switzerland, Ukraine and UAE.
So far in the first quarter, the company has opened 12 third-party owned stores with plans to open another 500-525 third-party owned SKECHERS branded stores to in 2018.
Other Financial Aspects
Skechers ended the quarter with cash and cash equivalents of $736.4 million (up $17.9 million from the year-ago quarter), long-term borrowings (net of current installments) of $71.1 million, and shareholders' equity of $1,829.1 million, excluding non-controlling interest of $119.1 million.
In February this year, the Board of Directors authorized a share buyback program of $150 million to be utilized by Feb 8, 2021.
Capital expenditures incurred during the quarter were $33.2 million on store openings, remodels along with corporate office and showroom upgrades. Management now envisions capital expenditures of about $45-$50 million for 2018, reflecting planned opening of stores, corporate upgrades and store remodeling projects.
Although Skechers currently carries a Zacks Rank #3 (Hold), it is subject to revision given the fourth-quarter performance.
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