11 Feb Skechers’ Q4 Revenues Jump 23 Percent
Skechers USA Inc. reported net earnings rose 25.5 percent in the fourth quarter on a 23.1 percent revenue gain. Sales topped guidance and earnings arrived at the high end of guidance.
Fourth Quarter Highlights
- Record quarterly sales of $1.33 billion, an increase of 23.1 percent. Skechers had guided sales to come in the range of $1.225 billion to $1.250 billion.
- Diluted earnings per share of $0.39, an increase of 25.8 percent. EPS was guided to come in the range of 35 cents to 40 cents.
- International sales increased 31.2 percent, or 32.3 percent on a constant-currency basis.
- Domestic sales increased 13.0 percent, including an increase of 10.4 percent in domestic wholesale.
- Comparable same-store sales increased 9.9 percent, including increases of 10.3 percent domestically and 8.8 percent internationally.
- International sales represented a record 59.3 percent of sales.
“2019 was a remarkable year for Skechers as we achieved four quarters of record sales, culminating in annual sales of over $5.2 billion—a significant milestone,” stated Robert Greenberg, chief executive officer of Skechers. “Our mission, as always, is to deliver style, comfort and innovation to the world. Our continued growth along with the 27 product and brand awards we received in 2019 is evidence that we accomplished our goal. 2019 was also the year we saw the resurgence of chunky sneakers—and as an originator in this category, we became a go-to source around the world. We also continued to grow our men’s business, introduced the next generations of our walk, run and golf shoes, and expanded the popular BOBS from Skechers line, helping save the lives of over 345,000 shelter pets in the United States in 2019 alone. We drove recognition of our brand with comprehensive campaigns that included football greats Tony Romo and Howie Long for men, animated commercials for kids, music video-style fashion street commercials, and marketing support that highlighted comfort and innovative features of our collections. Our efforts in 2019 resulted in Skechers receiving two 2019 Plus Awards: company of the Year and Children’s Excellence in Design from industry trade publication Footwear Plus.”
Greenberg continued: “We are deeply concerned by the health crisis in China, and for the well-being of our employees, partners, vendors and consumers in the region. We continue to monitor this situation and its potential disruption to our global business. The Skechers brand is strong in China, and we remain confident in our long-term prospects in the country.”
“The fourth quarter represented a new annual sales record and the second-highest sales quarter in our history, both significant achievements for our brand,” began David Weinberg, chief operating officer of Skechers. “The growth of 23.1 percent in the fourth quarter was due to increases of 31.2 percent in our international sales and 13.0 percent in our domestic sales, with every region growing by double digits and international now representing 59.3 percent of our total business for the quarter. With comparable same-store increases of 9.9 percent, including 10.3 percent in the domestic market, our direct-to-consumer channel continues to be a barometer for the strength of our brand. In the quarter, we opened a net 21 wholly-owned Skechers stores, and 219 third-party stores, bringing our total Skechers store count to 3,547 worldwide. We have the infrastructure and inventory in place to meet the near-term demand for our brand, and we will continue to invest in our global operations.”
Fourth Quarter 2019 Financial Results
- Sales grew 23.1 percent as a result of a 31.2 percent increase in the company’s international business, or 32.3 percent on a constant currency basis, and a 13.0 percent increase in its domestic business. On a constant-currency basis, the company’s total sales increased 23.8 percent. By segments, the company’s international wholesale business increased 32.8 percent, its company-owned, direct-to-consumer, business increased 19.4 percent and the company’s domestic wholesale business increased 10.4 percent. Comparable same-store sales in company-owned stores and e-commerce increased 9.9 percent, including 10.3 percent in the United States and 8.8 percent internationally.
- Gross margins increased by 20 basis points as a result of the improved average selling price per unit, partially offset by an increase in the average cost per unit driven, in part, by higher duties in its domestic wholesale business.
- SG&A expenses increased 25.5 percent in the quarter and were modestly higher as a percentage of sales. Selling expenses increased by $26.8 million primarily due to higher advertising expenditures. General and administrative expenses increased by $84.7 million and remained flat as a percentage of sales. The increase is primarily reflective of additional spending of $32.7 million associated with its direct-to-consumer business and 47 net additional company-owned Skechers stores, including 21 that opened in the fourth quarter, and $28.2 million to support the growth of its joint venture business, including in China and the addition of operations in Mexico.
- Earnings from operations increased $10.4 million, or 12.4 percent, to $94.1 million.
- Net earnings climbed 25.5 percent to $59.5 million, or 39 cents, from $47.4 million, or 31 cents, a year ago.
- In the fourth quarter, the company’s effective income tax rate was 14.0 percent.
Year Ended 2019 Financial Results
- For the full-year, sales grew 12.5 percent, the result of a 20.2 percent increase in the company’s international business, or 24.3 percent on a constant currency basis, and a 3.3 percent increase in its domestic business.
- Gross margins decreased slightly as a result of promotional efforts to clear seasonal inventory during the year and an increase in the average cost per unit in select international markets, partially offset by an increase in the average selling price in the company’s direct-to-consumer business.
- For the full-year period, SG&A expenses increased by 10.5 percent or $188.8 million. Selling expenses decreased as a percentage of sales but increased by $19.5 million. General and administrative expenses increased $169.3 million but improved as a percentage of sales. The increase is mainly due to 47 additional company-owned stores and investments to grow its operations internationally.
- Earnings from operations increased $80.6 million, or 18.4 percent, to $518.4 million.
- Net earnings were $346.6 million and diluted earnings per share were $2.25.
Balance Sheet
- At year-end, cash, cash equivalents and investments totaled $1.03 billion, a decrease of $34.5 million, or 3.2 percent from December 31, 2018. The decrease in cash, as compared to December 31, 2018, is mainly attributable to investments the company made to acquire the minority interest in its India joint venture and to form a new joint venture in Mexico.
- Total inventory, including inventory in transit, was $1.07 billion, a $206.6 million increase from December 31, 2018. The majority of the year-over-year inventory increase is to support growth in its international wholesale business and expansion of its direct-to-consumer business globally.
- Working capital was $1.58 billion, a $40.5 million decrease over December 31, 2018, partially attributable to the inclusion of current operating lease liabilities totaling $191.1 million arising from the adoption of ASU 842 as of January 2019.
“Skechers record-setting fourth quarter and full-year 2019 results reflect the strength of our brand, product offerings and global execution capabilities,” said John Vandemore, chief financial officer of Skechers. “We continue to make investments globally to build on those strengths and to support our strategy to expand internationally and to deepen our direct to consumer relationships in-store and online.”
Outlook
For the first quarter of 2020, the company believes it will achieve sales in the range of $1.400 billion to $1.425 billion, and diluted earnings per share of $0.70 to $0.75. This guidance reflects continued growth in each of the company’s three reportable segments and a full-year effective tax rate of 16 to 18 percent. It also incorporates an initial estimate of the impact to the company of current events in China, including a significant number of temporary store closures and below-average comparable store sales. This estimate could materially change if the situation in China worsens considerably and effects the company’s business outside of China or its supply chain.