Skechers Reports Strong Q2 Sales

Skechers Reports Strong Q2 Sales

Skechers USA, Inc .’s ( SKX ) second-quarter 2013 earnings came in at 14 cents a share, a significant recovery from the loss of 4 cents delivered in the prior-year quarter, owing to strong sales across international wholesale and company-owned retail businesses.

Increased demand of products and healthy performance across all revenue channels led to an 11.5% surge in revenues to $428.2 million.

With more emphasis on the new line of products, cost containment efforts, inventory management and global distribution platform, this Zacks Rank #1 (Strong Buy) company anticipates sustaining the growth momentum in 2013. Moreover, Skechers expects to benefit from back-to-school deliveries and projects significant growth for the upcoming quarter as the demand for the company’s products remains strong.

The quarter exhibited a major improvement in gross profit, which soared 13.7% to $194.9 million, reflecting higher sales volume. Moreover, gross margin expanded 90 basis points to 45.5%, reflecting increased sales and favorable product mix.

Sales Details

The domestic wholesale business marked an elevation of 6.6%, reflecting a jump of 7.1% in pairs shipped coupled with double-digit growth across the men’s and women’s divisions. The company’s Performance Division remained strong with double-digit gain at the men’s Performance line.

Skechers’ international business increased 10.7% on the back of a 35.1% rise in international subsidiary and joint venture sales. However, distributor sales declined 27.7%. Tough macroeconomic conditions in Europe continue to disappoint. However, China, Chile, Canada, Hong Kong and Singapore portrayed growth momentum.

Citing economic and political challenges in several markets, Skechers apprehends international distributor sales to be low for the year. However, subsidiary and joint venture businesses are expected to rise.

On a combined basis, retail business sales grew 18.9%, whereas comparable-store sales advanced 16.5%. Domestic retail sales rose 19%, while comparable-store sales increased 16.5%. International retail sales jumped 17.7%, whereas comparable-store sales climbed 16.8%.

The company’s licensing division has been another source of revenue, whereby the company licenses its name and images. Skechers generated $1.4 million in revenues during the quarter from its licensing partners, which include apparel, eyewear and backpacks.

The 37.2% rise in sales from the company’s e-Commerce division was one of the highlights of the quarter. Though the company uses it as a marketing tool, the division was successful in driving incremental sales during the quarter.

Stores Update

Skechers, which competes with Deckers Outdoor Corp. ( DECK ), had 355 retail stores under operation at the end of the second quarter. During the quarter, the company opened 2 stores each in Puerto Rico and Chicago, while it opened 1 store each in Santa Barbara, Japan and Phoenix. The company shuttered 5 outlets in the quarter. So far, in the third quarter of 2013, Skechers has opened 1 outlet in Puerto Rico, 1 in Atlanta, and 1 store in the suburb of Chicago. The company closed 1 location and plans to close another in the coming month.  For the remaining part of the year, the company anticipates opening 35 to 40 outlets.

At the end of the quarter, the company operated 124 outlets under joint ventures in Asia, including stores operated by licensees, 276 distributor-owned or licensed Skechers retail stores globally, and 23 company-licensed locations in Canada, Spain, Portugal, Ireland, and the Netherlands.

During the quarter, Skechers’ under its joint ventures and through its franchisees and distributors opened 32 outlets, which included the company’s first store in Myanmar.  3 stores each were opened in the UAE and Mexico, 7 in Indonesia and 2 each in South Korea, Peru and Singapore. The company opened 1 store each in Egypt, Taiwan, India, Columbia and Lebanon. So far in the third quarter, 5 outlets were opened with 30 more on the cards. In the second quarter, the company shuttered 2 outlets, 1 each in Singapore and Russia.

Strategic Initiatives

Management remains committed to focus on new lines of products, opening of additional Skechers stores and increasing distribution channels with the development of international distribution agreements to boost its sales and profitability. Moreover, international business remains a significant growth driver for the company’s sales. Skechers, through its distribution networks, subsidiaries and joint ventures, is poised to enhance its global reach in the footwear market.

Other Financial Aspects

Skechers ended the quarter with cash and cash equivalents of $333 million, long-term debt of $122.5 million and shareholders’ equity of $887.8 million, excluding non-controlling interest of $47.2 million. Capital expenditures for the quarter were approximately $9.8 million.