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Skechers U.S.A., Inc. (SKX)

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SKECHERS USA, Inc. (SKX)

Q4 2017 Earnings Call

February 08, 2018 4:30 pm ET

Executives

Unverified Participant

David Weinberg - SKECHERS USA, Inc.

John M. Vandemore - SKECHERS USA, Inc.

[0F94YQ-E David Buckley

Analysts

Corinna Van Der Ghinst - Citigroup Global Markets, Inc.

Scott D. Krasik - The Buckingham Research Group, Inc.

John Kernan - Cowen & Company LLC

Sam Poser - Susquehanna Financial Group LLLP

Jeff Van Sinderen - B. Riley FBR, Inc.

Omar Saad - Evercore Group LLC

Laurent Vasilescu - Macquarie Capital (USA), Inc.

Christopher Svezia - Wedbush Securities, Inc.

Tom Nikic - Wells Fargo Securities LLC

Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.

Presentation

Operator

Greetings and welcome to the SKECHERS Q4 and Full Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to SKECHERS.

Unverified Participant

Thank you, everyone for joining us on SKECHERS conference call today. I will now read the Safe Harbor statement. Certain statements contained herein including, without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended.

Such forward-looking statements involve known and unknown risks including, but not limited to, global, national and local economic, business and market conditions in general and specifically as they apply to the retail industry and the company. There can be no assurance that the actual future results, performance or achievements expressed or implied by such forward-looking statements will occur.

Users of the forward-looking statements are encouraged to review the company's filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities laws for a description of all other significant risk factors that may affect the company's business, results of operations and financial conditions.

With that, I would like to turn the call over to SKECHERS Chief Operating Officer, David Weinberg; and Chief Financial Officer, John Vandemore. David?

David Weinberg - SKECHERS USA, Inc.

Good afternoon, and thank you for joining us today to review SKECHERS fourth quarter and year-end 2017 financial results. Joining me on the call today is John Vandemore, SKECHERS new Chief Financial Officer, who will discuss our financial results in detail.

Fourth quarter sales increased 27% to $970.6 million and full-year sales increased 16.9% to $4.16 billion. Both record sales achievements which are a testament to the strength and relevance of our product, marketing and brand worldwide and are focused on building our global infrastructure.

Fourth quarter highlights include a 40.2% sales increase in our international wholesale business, primarily due to significant double-digit gains in our key subsidiary and joint venture countries including China and a triple-digit gain in several subsidiary markets; international wholesale and retail growing to 52.6% of our total business in the quarter; a 25.8% sales increase on a worldwide company-owned retail stores with comparable same store sales of 12% globally; domestic wholesale gains of 11.6% with an increase in pairs shipped of 13.9%; maintaining our position in the United States as the number one walking, work, and casual lifestyle footwear brand and the number two casual athletic brand and women's footwear brand; and a strong balance sheet with $736.4 million in cash and cash equivalents, or approximately $4.70 per diluted share.

Full-year highlights include growing annual sales to more than $4 billion through four consecutive record quarters and double-digit growth across our three distribution channels and expanding our global retail footprint to 2,570 company and third-party owned SKECHERS stores, including the net addition of 142 stores in the quarter. Subsequent to the quarter-end, our board authorized a three-year $150 million stock repurchase program.

Now turning to our business channels in detail. Our domestic wholesale business increased 11.6% for the fourth quarter and 4.1% for the year. The quarterly growth was the result of a 13.9% increase in pairs shipped and a 2% decrease in average price per pair, primarily due to the product mix and strength of several collection that have lower average selling price.

Our men's and women's footwear achieved double-digit growth in the quarter. Our Kids business was flat for the period, but increased 6.4% for the full year. We believe that the fourth quarter results in our Kids business was due to a timing issue as we were up 37.9% in the third quarter, in part to prepare for the holiday selling season.

The growth in our men's and women's businesses was across multiple lines including GO, On the GO, GOLF, casuals and work, among others. Men's Sport also performed extremely well. For the holiday period, we ran several digital and television campaigns including product focused spots for SKECHERS GOwalk Joy, Skech-Knit, Mark Nason, and Kids' lighted footwear.

We also ran campaigns for our Sport and Relaxed Fit footwear, featuring our brand ambassadors, Sugar Ray Leonard and Howie Long, who also appeared on our Super Bowl campaign this year. We also launched a new campaign in English and Spanish with baseball legend David Ortiz. Targeting teens and young women, we ran our Camila Cabello's SKECHERS campaign both on TV and on social media. Camila released her debut solo album last month and broke records with her albums number one position in more than 100 markets within 24 hours of its release. Also, in the fourth quarter, SKECHERS' ambassador Meb completed the final race of the story career.

At 42, the beloved marathoner placed 11th at the New York Marathon wearing SKECHERS Performance footwear. Meb will continue to work with SKECHERS Performance team as he has done over the past six years. We ended the year again as the leading, walking, work and casual lifestyle and casual dress footwear brand, and the second largest casual athletic footwear brand. With the resurgence in retro styling and our heritage footwear lines, we believe our domestic business will remain strong as consumers seek comfort and style at a compelling price.

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