Footwear maker Skechers (SKX, Financial) continued its record-breaking run during the third quarter as the company posted 16.2% sales growth. The above-average result was made possible by the company’s international business surging 25.7% while achieving an 18.6% increase in the company-owned global retail business segment. The double-digit growth performance in these two segments helped the company sail past a tight U.S. market as its domestic wholesale segment grew by just 1.4%.
David Weinberg, chief operating officer and chief financial officer, said:
“The growth came across our three distribution channels –Â with double-digit increases in our company-owned Skechers retail business worldwide and our international subsidiary and joint venture businesses as well as a single-digit increase in our international distributor and domestic wholesale businesses.
“The strong international growth, including the continued strength in China, the resurgence of the United Kingdom and growth across all of Europe, combined with our strong international retail business, resulted in international wholesale and retail representing 53% of our total sales in the third quarter.”
Skechers’ stock price has increased by more than 40%, thanks to Wall Street analysts grossly underestimating the company’s revenue as well as earnings numbers. The market was expecting Skechers to post $1.07 billion in revenue and diluted earnings per share of 43 cents, but the company reported $1.095 billion in revenue and diluted earnings per share of 59 cents, well above the market’s estimates.
The market-beating numbers, coupled with sharp revision in price targets by analysts, helped the stock price jump sharply after earnings, and there is enough momentum for the company in international markets to allow it to continue its record-breaking streak. CNBC reported that “a slew of analysts upgraded their price targets on the stock in the wake of the report. Wedbush raised its target to $35 from $25, Cowen and Co. boosted its target to $36 from $35, and Morgan Stanley increased its target to $31 from $28.50.”
The U.S. market continues to remain a concern for footwear and apparel makers. Adidas (FRA:ADS, Financial) is the only company that has managed to report strong growth numbers while Nike (NKE, Financial), Under Armour (UA, Financial)(UAA, Financial) and Skechers have seen their U.S. numbers slow down to a crawl. Nike’s footwear business in the U.S. declined by 3% during the first quarter of the current fiscal, and recovery is certainly going to take time because trends take time to change and take shape.
Fortunately for Skechers, its international business already accounts for more than half of the company’s revenues while its domestic business is holding its ground. Domestic wholesale business growth was flat during the first quarter, then grew by 6.4% during the second quarter and then once again slowed to 1.4% during the third quarter. It’s a mixed bag, and there is no clear trend or any momentum in the company’s domestic wholesale business. As such, Skechers will remain extremely dependent on its over-par performance in international markets.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
