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After Skechers (SKX) warned on September 19 that sales trends in China were deteriorating more than anticipated due to severe consumer discretionary spending pressures, expectations surrounding its 3Q24 earnings report took a couple steps lower. While those concerns around China did indeed come to fruition as sales in the country fell by 5.7%, SKX saw broad-based strength across the rest of its markets in both the wholesale and DTC businesses. That strength more than offset the China-based headwinds, resulting in a Q3 top and bottom-line beat with revenue growth accelerating to 16.0% from 7.3% last quarter.

• A key to SKX's success has been its steady stream of new innovations and products that are typically priced below competitors such as adidas (ADDYY) and NIKE (NKE). A few examples include its hands-free slip-ins, Skechers Arch Fit, and Skechers Air-cooled memory form. Bolstered by this comfort technology, SKX -- and competitor Deckers (DECK), which also posted upside results last night -- are gaining market share on NKE while that company navigates through a CEO transition.
• Similar to last quarter, the international business was the standout with sales up by 16%, despite the weakness in China. In Europe, where SKX had been contending with significant supply chain disruptions, the company's mitigation strategies to address those issues paid dividends, enabling it to meet the robust demand. Overall, the EMEA region achieved growth of 30% with double-digit growth seen across all countries.
• There was improvement on the domestic side as well. Recall that last quarter SKX stated that it saw lower foot traffic at its brick-and-mortar stores in the U.S. Encouragingly, SKX noted during last night's earnings call that it observed a gradual improvement in store traffic, which supported stable retail sales. Meanwhile, its eCommerce channel continued to churn out solid growth, leading to domestic DTC sales growth of 3.7% on top of last year's 14% increase.
• SKX's share gains are most evident in the impressive growth for its wholesale business. Due to increased capacity, or share of shelf space, at SKX's wholesale customers, wholesale revenue jumped by 20.6%. Better yet, the company expects that wholesale will deliver strong results during Q4, which of course includes the vital holiday season shopping period.
• The one main blemish is that SKX's Q4 EPS guidance of $0.70-$0.75 did fall a bit short of expectations. In Q3, gross margin dipped by 80 bps yr/yr to 52.1% due to lower average selling prices, indicating that SKX has become more promotional in order to fuel sales growth.

The main takeaway is that, with the exception of China, business is healthy for SKX and that its new product innovations are resonating with consumers. It's clear that the company is filling the innovation void seen at NKE, but it's also relying on lower prices to drive sales, which is reflected in its downside EPS guidance.