Skechers USA Inc.’s (SKX, Financial) downturn started after reaching its all-time high in 2015 and was down nearly 65% in October 2016. The athletic apparel company, though, has displayed good performance this year and is up almost 40% year to date.
Shares of Skechers surged more than 40% in a single trading session on Oct. 20 after the company posted splendid third-quarter results. For the third quarter, the company shared earnings per share of 59 cents, beating the analysts’ estimate by a margin of 15 cents. The company’s operating profits surged 13% whereas net earnings rose 42%, disrupting a streak of five consecutive quarters of decreasing profitability.
Although the sports footwear maker’s marvelous earnings growth was primarily due to the much lower effective tax rate, it would have still been in the green without that lowered tax-rate tailwind. Apart from the lowered tax rate, the strong sales growth in the international wholesale business and global retail business helped the company deliver robust profit.
On the other side, its revenue came in at $1.1 billion, again beating the consensus by $30 million. Most significantly, that figure represents a surge of almost 17% year over year. The sports footwear maker’s revenue growth decelerated considerably after second-quarter 2016. Now it looks like the company has successfully managed to get its revenue growth back on track as its net sales grew over 16% for the second quarter in a row.
In particular, the company’s sales in China surged approximately 50% in the previous quarter. Also, it expects massive sales for the approaching Single’s Day, China’s largest e-commerce shopping day. Another remarkable thing was the company’s same-store sales growth, which came in at almost 4.5%. Throughout the quarter, Skechers increased its owned store count by more than 600 locations and currently owns 2,428 locations around the globe.
On the other hand, one of the most significant things to notice was profit growth that matched top-line growth. In the first half of this year, operating profits were down over 10% year over year as the footwear maker spent a huge amount of cash to fuel its growth. Those substantial operating expenses were driven by digital investments and new store inaugurations as well as increased advertising investments.
Apart from this, the sports footwear maker’s balance sheet continues improving at a healthy rate as it currently has just above $800 million in cash and cash equivalents. Moving ahead, the company anticipates net sales in between $860 million and $885 million as well as net earnings in the range of 9 cents to 14 cents, throwing light on a strong growth rate.
Though it is a healthy growth rate, investors should expect an even better growth rate in the future keeping in mind that the company’s substantial investments will start paying off in the coming quarters which in turn will reduce operating expenses and expand operating margin.
Summing up
While most of the footwear makers including Under Armour (UAA, Financial)(UA, Financial) and Nike (NKE, Financial) are struggling to thrive, Skechers continues growing at a steady rate. Most importantly, the company has not been negatively influenced by the slowing growth.
On the other hand, it appears to be good news for investors that Skechers’ profit growth is finally starting to match top-line growth. Also, the company expects the strong upward momentum to continue this year as well as in the coming year. The sports footwear maker’s international business is performing much better than expectations and will continue producing surprising results in the future.
Although Skechers’ future looks bright, shareholders looking to initiate a position in the stock should wait for the right time until the fiery growth cools down. Existing shareholders, though, should continue their long-term journey with Skechers.
Disclosure: No positions in the stocks mentioned in this article.