Skechers USA (SKX 29.89, +3.77, +14.43%)) is trading nicely higher today
after reporting Q3 earnings results last night and guiding for Q4.
Skechers operates primarily as a maker of footwear for men, women, and children. It primarily sells products wholesale via department stores and shoe stores, such as Foot Locker (FL), Finish Line (JDDSF), and Famous Footwear (CAL), but it also has its own retail locations and it sells shoes online. In terms of pricing, SKX sees itself as being in the sweet spot between private label and bigger players like Nike (NKE).
Turning to the Q3 results, EPS declined slightly to $0.58 from $0.59 last year, but that was much better than prior guidance of $0.50-0.55. Revenue rose 7.5% year/year to $1.18 bln, but that was below prior guidance of $1.200-1.225 bln. So, it was a bit of a mixed quarter. Third quarter same store comps at company-owned retail stores worldwide increased +1.9%, including an increase of +3.0% in the U.S. offset by a decrease of 0.8% in its international stores. Looking ahead, the guidance for Q4 was much better than market expectations. SKX expects Q4 EPS of $0.20-0.25 and revenue of $1.100-1.125 bln.
On the call, SKX made some interesting points. SKX sees its position in the footwear market as unique and celebrates the continuing strength and loyalty of its core customer base. But that existing base has also been expanding; per Skechers, resurgent interest globally in “chunky” shoe styles has helped to pull the focus of particularly “fashion-minded” or trend-tracking consumers to Skechers, which has reportedly gained recognition broadly as a prime mover in the chunky shoe space, particularly due to its D’Lites line. This has allowed SKX to sell to accounts that cater to this market as well as to appear in the editorial sections of fashion and sneaker publications. In a signal of the extent to which the trend has penetrated the fashion world and of Skechers' proximity to the forefront of the trend, Skechers shoes also appeared on the catwalk at seven designer shows during New York's Fashion Week last month. In general, product categories for which Skechers reported seeing particular strength in the U.S. during the quarter included women’s sandals, walking shoes, and BOBS as well as casual, work, and golf shoes for men and women.
Overall, its domestic wholesale business decreased 3% for Q3 and was overall essentially flat for the first nine months taken as a whole. Average price per pair decreased by 4.4%, or $1.03, in the quarter, partly due to the strength of several lower-priced collections amid the company’s product mix. However, domestic wholesale margins increased 110 bp. SKX says that business within its core accounts remained solid during the quarter and that it maintained its position as the leading brand for men and women in numerous categories.
As Skechers begins account meetings this week, it is looking forward to presenting its 2019 collection and has been pleased with initial reactions. SKX believes that its wholesale business remains strong.
China continues to be a strong force in the company’s large international business; operations there realized an increase of 21.9% and saw approximately 5.6 mln pairs of shoes shipped in the quarter. Looking ahead, SKX continues to see penetration into international markets as the biggest growth opportunity for the company. Growth throughout the company’s international presence was evident in both the reported 11.8% increase in sales in the company’s international wholesale business as well as in the 15.7% increase achieved by international stores for its company-owned retail business (which saw sales increase by 10.6% globally and by 8.1% in domestic retail stores).
Investors are clearly pleased with the Q3 results. Even though revenue mark was light, SKX reported nice EPS upside. After the stock traded lower following Q1 and Q2 results earlier this year, investors should be happy to see a nice bounce in the stock this morning.
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