The first three months of the year represented the California footwear brand’s first quarter of year-on-year sales growth since Q4 2019. Speaking in a call with investors Thursday, John Vandemore, the company’ chief financial officer, attributed the strong performance to marketing, relaxed restrictions and stimulus payments.
“The quarter began as expected, with the pandemic continuing to influence tepid consumer trends worldwide, especially as many markets reinstituted lockdowns,” Vandemore said. “However, mid-quarter, we began seeing signs of consumer engagement and optimism domestically that we have not seen in over a year. That led results in March that even exceeded our own internal expectations.”
Skechers recorded $1.43 billion in revenue during the first quarter, up 15 percent compared to last year’s $1.24 billion and up 11.9 percent versus the first quarter of 2019. This bump included a 20.2 percent year-over-year jump in international sales—57.8 percent of total sales—and a smaller, but still substantial, 8.5 percent increase domestically.
Chief operating officer David Weinberg identified women’s sport, kids’, work and men’s performance as the categories with the largest gains. Average selling price, he added, rose 2.8 percent, “reflecting the strength and appeal of new comfort products and technologies.”
International wholesale sales, one of the main drives of Skechers’ first-quarter growth, rose 23.8 percent to $712.2 million. Domestically, wholesale sales slipped 0.9 percent to $374.7 million, primarily due to the unfavorable timing of shipments to customers,” Vandemore said.
Direct-to-consumer sales, meanwhile, returned to growth in the first quarter, rising 18.1 percent year over year—or 13.1 percent compared to 2019—to $341.5 million. This included a 28.4 percent increase domestically and 1.9 percent bump internationally, where Weinberg said the company lost 37 percent of the days available to sell during the quarter. Vandemore noted these results reflected a “notable” 143 percent increase in domestic e-commerce as well as a slight benefit from the pandemic-related store closures of last year.
Gross profit grew 24.1 percent to $689.6 million. Gross margin rose 350 basis points to 47.6 percent, “primarily driven by increases in our average selling price across all segments, as well as a favorable mix of online sales,” Vandemore said.
Net earnings during the first quarter, $98.6 million, came in more than double last year’s $49.1 million. Diluted earnings per share, at 63 ents, climbed 96.9 percent compared to the 32 cents seen during the first quarter of last year.
Cash, cash equivalents and investments totaled $1.51 billion at the end of the first quarter, an increase of $148.2 million, or 10.8 percent, from a year earlier.
Total inventory, meanwhile, climbed 8.3 percent year-over-year to $1.07 billion. The increased inventory levels, Vandemore said, was largely attributable to higher inventories to support growth in China and government-mandated closures in Europe.
While brands like Nike and Adidas have faced boycott calls in China due to their statements expressing concern over reports of forced labor in the Xinjiang Uyghur Autonomous Region, Skechers appears to have emerged unscathed. According to Weinberg, the company has not seen any impact yet. In fact, sales in the country grew 174 percent year-over-year and 45.5 percent compared to 2019. China Market Research’s Kerstin Brolsma identified Skechers as one of a few brands to issue a statement that Chinese consumers have been receptive of.
While that statement—the brand said it has audited its Xinjiang factory multiple times and found no indications of forced labor—may have played well in China, Skechers now faces criticism in the West. A group of nonprofits and a former Uyghur detainee have filed a complaint with the public prosecutor’s office in Paris accusing Skechers and other brands of allegedly “encouraging and profiting” from the forced labor of Uyghurs in Xinjiang.
Skechers appears optimistic about the near-term. The company’s second-quarter outlook calls for sales of between $1.45 billion and $1.5 billion, above its record-breaking first quarter. It estimated diluted earnings per share would land between 40 and 50 cents. For the fiscal year, Skechers is predicting sales between $5.8 billion and $5.9 billion and diluted earnings per share of between $1.80 and $2.
“Although we remain cautious given the ongoing temporary closures in many countries, we are seeing the improved traffic that we experienced in March continue in April where markets are open,” Weinberg said. “The demand for our product is strong as consumers want familiarity, comfort, quality and value, all of which the Skechers brand delivers together with innovation and style.”