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Skechers Gains Momentum in the Third Quarter

The company is moving in the right direction

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Oct 29, 2021
Summary
  • Skechers missed both revenue and earnings expectations for the third quarter.
  • The company reported stellar year-over-year revenue growth, highlighting the strong recovery in business.
  • Skechers is strategically well-positioned to benefit from the expected improvements in the macroeconomic environment.
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Skechers U.S.A, Inc. (

SKX, Financial) is an American multinational company that designs and sells lifestyle and athletic footwear, apparel and accessories. The company sells its products through third-party department and specialty stores, retailers and boutiques, as well as company-owned e-commerce websites, concept stores and factory and warehouse outlet stores.

The company operates through three segments:

  • Domestic wholesale.
  • International wholesale.
  • Direct-to-consumer.

On Oct. 28, the athletic footwear company released third-quarter financial results that fell short of analyst expectations for both earnings and revenue. The company reported earnings of 66 cents per share compared to analyst projections of 69 cents per share. Nonetheless, Skechers reported strong year-over-year improvements in revenue and other operating metrics, which confirms that the company is well and truly on its way to recovering from recession-related woes.

Earnings recap

The company reported revenue of $1.55 billion for the third quarter, up 19.2% year-over-year. The increase in sales was driven by a 20.1% gain in domestic sales and an 18.6% increase in international sales, which accounted for 58% of overall sales for the quarter. Both direct-to-consumer and wholesale segments saw significant growth in revenue in comparison to the corresponding period last year, which is a good indication of the momentum behind the financial performance of the company.

The direct-to-consumer segment saw the biggest quarterly sales improvement, with international business up 61% and domestic business up 35%. direct-to-consumer comparable same-store sales climbed 31% globally, growing by 33.7% in the United States and 25.1% worldwide. The 43% increase in brick-and-mortar sales was supported by increased foot traffic and normalized operating hours. On the other hand, the increase in international direct-to-consumer sales was driven by triple-digit increases in Chile and Korea, double-digit increases in the United Kingdom and Mexico and significant growth in Canada, Peru and India. The international wholesale segment saw a 61.9% increase in distributor sales, a 10.0% increase in China and a 67.5% increase in India, somewhat offset by an 11.0% decline in sales reported by European subsidiaries. The joint venture business grew 5% in the quarter as well, owing to a 10% gain in China as well as robust sales in Mexico and Israel.

The e-commerce channel grew by 3% but was nevertheless hampered by supply chain bottlenecks, which resulted in limited product availability. Despite the challenges, Skechers continued to invest in infrastructure in the e-commerce channel. The company launched new websites in Ireland and the United Kingdom this month, and established 10 company-owned stores in the third quarter, including two in Columbia and one each in Peru, India, Germany, and France as well as one in downtown Los Angeles. The company also opened three stores recently, including one in Naples, and expects to open another 15 to 20 stores by the end of the year.

Although pandemic-related uncertainties are still a challenge, the outlook for the athletic footwear industry is increasingly turning positive. According to Statista, the global sports footwear industry is estimated to grow at a compound annual growth rate of 12.38% through 2025, which will open many doors for Skechers to improve its financial performance. This growth is expected to be driven by the increasing health concerns among the youth and the rising importance of fitness-related activities. Skechers is planning to turn this favorable outlook into higher earnings by expanding specialized footwear stores, partnering with footwear brands and celebrities, organizing international sports events and strengthening its distribution channels.

Takeaway

Skechers continues to invest strategically in e-commerce, expanding its distribution network and strengthening its brand presence. Supply chain-related challenges limited growth opportunities for Skechers in the third quarter, and these challenges are likely to persist in the next quarter as well. Amid these challenges, the company seems to be executing its strategy to perfection, which is likely to help the company report strong financial results once the macroeconomic outlook improves.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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