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

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Skechers USA Inc. (SKX)

Q3 2018 Earnings Conference Call

October 18, 2018 16:30 ET

Executives

David Weinberg - Chief Operating Officer

John Vandemore - Chief Financial Officer

Analysts

Jay Sole - UBS

Laurent Vasilescu - Macquarie

Omar Saad - Evercore ISI

Jeff Van Sinderen - B. Riley FBR

Sam Poser - Susquehanna

John Kernan - Cowen & Company

Chris Svezia - Wedbush

Tom Nikic - Wells Fargo

Jim Chartier - Monness Crespi & Hardt

Presentation

Operator

Greetings and welcome to the Skechers Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Skechers. Thank you. You may begin.

Unidentified Company Representative

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 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

Good afternoon and thank you for joining us today to review Skechers third quarter 2018 financial results. With me on the call is John Vandemore, Skechers’ Chief Financial Officer who will discuss our financial results in detail.

We achieved a new third quarter sales record of $1.176 billion, a 7.5% increase over last year. This was the result of our total international business increasing 12.5% and total domestic increasing 1.8%. On a constant currency basis, our sales growth in the quarter was 8.5%. With three record quarters, we achieved a new 9-month high of $3.56 billion. The growth came from a 19.7% increase in our total international business and a 3.4% increase in our total domestic business. In addition to the record sales, third quarter highlights include diluted earnings per share of $0.58, operating margin of 10.5% and 11.8% sales increase in our international wholesale business, the result of both double-digit increases in our international distributor and international joint venture businesses, a 10.6% sales increase in our global company-owned retail stores with a comp store sales increase of 1.9%, international representing 55.5% of our sales, expanded our Skechers retail network to 2,802 stores worldwide, including the opening of 13 new company-owned stores and 108 third-party stores. Maintained our position in the United States is the number one walking, work, casual lifestyle and women’s sandal brands, Elite golfer Brooke Henderson winning her 7th LPGA title in her home country of Canada and Elite golfer Russell Knox winning the Irish Open, both wearing Skechers GO GOLF and repurchased 1.4 million shares of common stock.

We believe we are in a unique position in the footwear market. Our core customers remained strong and loyal to Skechers. The resurgence of the chunky shoe trend around the world is resulting in new interest from fashion-minded consumers and pacemakers as Skechers D'Lites gains broad acceptance as the originator of the trend. This has allowed us to partner with accounts that cater to this market as well as appear in the editorial sections of fashion and sneaker publication and on the catwalk, at 7 designer shows during New York Fashion Week last month. We also expanded our collaboration with the best selling anime series One Piece and Skechers D'Lites to North America as well as in Europe.

Now, turning to our business, our domestic wholesale business decreased 3% for the third quarter and was flat for the first 9 months. In the quarter, we shipped 1.5% more pairs. For the first 9 months, we increased our shipments by 4.9%. The average price per pair decreased 4.4% or $1.03 in the quarter partially due to the strength of several lower priced collections. However, domestic wholesale margins increased 110 basis points in the quarter. Our business within our core accounts remained solid during the quarter as we maintained our position as a leading brand for men and women in numerous categories. Our product strength in the United States came across multiple divisions, including walk, sandals and BOBS for women as well as casuals, work and golf for men and women. To support our domestic business, we ran multiple campaigns and aired the following commercial. For women, a Skechers D’Lites campaign with Camila Cabello, a Skechers D’Lites Fashion campaign and Skechers GOwalk Joy. For men, sports and casual slip-on spots starring Tony Romo, Relaxed Fit with David Ortiz, and Wide Fit footwear featuring Howie Long. And for kids, we ran commercials on children’s programming for our lighted and lightweight sports footwear as well as Twinkle Toes.

Read the rest of this transcript on seekingalpha.com