Skechers USA (SKX) is trading sharply higher today (+30%) after reporting Q3 earnings results last night and guiding for Q4. In case you're not familiar, Skechers makes footwear for men, women, and children. It primarily sells wholesale via department stores and shoe stores (Foot Locker, Finish Line, Famous Footwear) 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 the big guys (Nike etc.)
SKX has been making strides in recent years by revamping its product offering with enhanced designs and comfort innovations. Also, SKX's higher-end performance shoe segment has been doing well. And they are expanding very nicely in international markets, particularly in China. They are also benefitting from an industry trend toward athletic shoes.
What strikes us about SKX is that they seem to successfully appeal to various age groups, from kids to teens to adults, and both men and women. It's rare that kids would want to buy shoes that their older parents would buy. However, SKX seems to walk this tightrope quite well whereas many other footwear/apparel companies stumble. It's a nice place to be in. It's partly due to signing endorsement deals with various celebrities who appeal to different age groups. Current sponsors include Rob Lowe, Meghan Trainor, Joe Montana, Howie Long, Sugar Ray Leonard, Brooke Burke-Charvet and Kelly Brook. So you can see the various age demographics.
Turning to the Q3 results, EPS rose 40% YoY to $0.59 from $0.42 in the prior year period. That was quite a bit better than prior guidance of $0.42-0.47. Revenue rose 16.2% year/year to $1.09 bln, which was above prior guidance of $1.05-1.075 bln. In terms of guidance for Q4, SKX expects EPS of $0.09-0.14, which is in-line with market expectations. They expect Q4 revenue of $860-885 mln, which is also in-line with market expectations.
The growth was the result of a 25.7% increase in the international wholesale business, a 1.4% increase in its domestic wholesale business, and an 18.6% increase in its company-owned global retail business with total comp store sales increases of +4.4%. The increase in its company-owned retail business, which included sales growth of 9.5% in its domestic channel and a domestic comp store sales increase of +3.1%, came despite temporary store closures in Texas and Florida, and continued store closures in Puerto Rico due to the recent hurricanes.
Also, growth came across its three distribution channels -- with double-digit increases in company-owned Skechers retail business worldwide and its international subsidiary and joint venture businesses, as well as a single-digit increase in its international distributor and domestic wholesale businesses. The strong international growth, including the continued strength in China, the resurgence of the UK and growth across all of Europe combined with its strong international retail business, resulted in international wholesale and retail representing 53% of total sales in Q3.
In sum, this was a nice surprise quarter, considering that SKX has missed EPS expectations in four of the past five quarters. So to report such large EPS upside relative to prior guidance was not expected. And what makes it particularly important is the fact that Q3 covers the crucial back-to-school period. The stock is being propelled to a new 52-week high today.