The stock of footwear retailer Skechers (SKX 23.28) is up 10% in pre-market trading, bolstered in part by some short-covering activity but driven mostly by the company's better-than-expected fourth quarter sales and outlook.
When it comes to anything retail these days, it seems investors are bracing for the worst. While Skechers had its problems with its domestic wholesale business, it put up some laudable results in its international wholesale business and in its company-owned retail business.
Specifically, its international wholesale business posted a 17.1% increase in net sales while the company-owned retail business enjoyed a 13.9% increase in net sales, supported by a 3.6% increase in comparable store sales. The strength in those areas offset an 11.8% decrease in net sales in the domestic wholesale business.
Altogether Skechers reported net sales of $764.3 million for its fourth quarter, up 5.8% year-over-year. That was a record for the quarter and it easily topped analysts' average expectation, as well as the company's own guidance of $710 million to $735 million.
Notwithstanding the improved sales, Skechers diluted earnings per share declined 79% to $0.04, due mostly to a 24% increase in general and administrative expenses as the company made long-term growth investments oriented mostly around company-store expansions and international growth.
Investors have looked past the earnings decline, heartened by the sales strength in a very challenging environment for retailers and the company's sales guidance.
Looking at the first quarter, Skechers expects to achieve flat to slightly positive sales in its domestic wholesale business despite record sales in the year-ago period and Easter falling into the second quarter in 2017. Management said the company ended 2016 with positive domestic and international backlogs, and the highest incoming order rate for its domestic wholesale, subsidiary and distributor businesses in its history..
Comparable sales for its company-owned retail stores on a global basis were up mid-single digits in January and high-single digits for the first week in February. Armed with that understanding, Skechers anticipates first quarter net sales in the range of $1.050 to $1.075 billion versus $978.8 million in the same period a year ago. The midpoint of that range is above analysts' average expectation.
Its first quarter earnings outlook calls for diluted earnings per share to be between $0.50 and $0.55. The high end of that range is actually below analysts' average expectation and it is 13% below the year-ago period.
The focus, however, remains on the top-line performance and current efforts to enhance long-term growth prospects, which will include increased international business. Stronger earnings growth would be nice at this juncture, yet the relative sales strength in a tough environment underscores for investors the potential earnings growth in coming quarters when general and administrative expenses chew up less of the income statement.