Skechers’ second-quarter results are in—and they reveal a complicated three-month stretch. The footwear company saw net sales decline 42 percent to $729.5 million and net income drop 190.6 percent to a $68.1 million loss, while also seeing e-commerce sales on its own sites skyrocket 428.2 percent. The total sales outperformed expectations from Wall Street, with analysts polled by FactSet expecting Skechers’ revenue to reach $653 million.
More than 90 percent of the company’s 3,615 stores worldwide have reopened.
In a Nutshell: The strong e-commerce sales for Skechers marks a significant jump from the 70 percent growth the footwear company saw in the first quarter, when it first shuttered all stores. The growth numbers apparently took a major turn in April, when Skechers first hit 400 percent e-commerce growth in the U.S., thanks to remixes of the song “Skechers” by the artist DripReport going viral on TikTok. The company recently rolled out an updated version of its e-commerce site in the U.S. and South Korea, and plans to launch new versions of its mobile app and loyalty program within the next few months.
And despite the overall challenges, the company now operates more stores—not reflecting temporary store closures—than it did in the first quarter, with total store count worldwide across company-owned, joint venture and distributor, licensee and franchise locations increasing from 3,575 on March 31 to 3,615 on June 30. Skechers is currently investing in a new retail point-of-sale software to deploy across all locations.
Total inventory for the second quarter, including inventory in transit, was $1.03 billion, a decrease of $42.1 million or 3.9 percent from Dec. 31, but an increase of $172.1 million or 20.1 percent over June 30, 2019. The higher year-over-year inventory levels reflect lower wholesale shipping and decreased retail activity and demand associated with the pandemic.
In a statement, David Weinberg, chief operating officer of Skechers, described the impact of COVID-19 as “significant,” but remains optimistic about early signs of recovery.
“While every country’s recovery has been unique, we began to see a similar recovery trend, first reflected in China and now extending into other markets globally including Australia, Germany, South Korea and Taiwan,” Weinberg said. “We believe the positive sales trends in markets that have re-opened, as well as the efficiency with which we addressed the pandemic challenges, are strong indicators that when the global health crisis stabilizes, Skechers will remain a global footwear leader.”
Skechers is not providing financial revenue or earnings guidance for future quarters given the ongoing business disruption and substantial uncertainty surrounding the impact of the pandemic on its business globally.
At the end of the quarter, cash, cash equivalents and investments totaled $1.56 billion, an increase of $524.5 million, or 50.9 percent, from Dec. 31, and an increase of $583 million, or 59.9 percent, over June 30, 2019. The increase primarily reflects the drawdown of $490 million from the company’s senior unsecured credit facility in the first quarter.
John Vandemore, chief financial officer of Skechers, noted in the report that the company has grown its cash balances by more than $175 million through “prudent inventory, working capital and operating expense management.”
Selling, general and administrative (SG&A) expenses declined $73 million, or 14.5 percent in the quarter. Selling expenses decreased by $53.3 million, or 46.9 percent, primarily due to lower advertising and marketing expenses globally.
General and administrative expenses decreased by $19.7 million, or 5 percent, despite the inclusion of an incremental $10.2 million in bad debt expense, due predominately to the impact of COVID-19 on wholesale customers across the globe. The total G&A expense decrease was primarily the result of a reduction in compensation-related costs due to the temporary closure of its retail stores and the furlough of select corporate staff.
Net Sales: Total sales decreased 42 percent to $729.5 million as a result of a 47.3 percent decrease in Skechers’ domestic business and a 37.8 percent decrease in its international business, reflecting the impact of the global pandemic.
The company’s international sales declines were partially offset by an 11.5 percent increase in China sales. With all Skechers stores in China reopened by May, the company implemented drastic cash controls and reworked production planning and inventory levels in concert with suppliers and partners, managing to limit inventory returns from key franchise partners.
The footwear company’s international wholesale business decreased 29.9 percent to $385.2 million, while its domestic wholesale business suffered a much rougher fate, declining 57.2 percent to $130.7 million.
With nearly all Skechers stores closed at some point in the quarter, the company’s direct-to-consumer business decreased 47.1 percent to $213.5 million, which includes the 428.2 percent sales increase in its e-commerce business.
Comparable same-store sales in the DTC business decreased 45.6 percent, including a decrease of 35.9 percent in the U.S. and 66.9 percent internationally.
Net Earnings: Net loss was $68.1 million for the quarter, dropping 190.6 percent from last year’s $75.2 million profit. Diluted loss per share was 44 cents, compared to diluted earnings of 49 cents per share last year. Adjusted loss per share was 48 cents, with analysts polled by FactSet expecting Skechers to report an adjusted loss of 67 cents a share.
Earnings loss from operations decreased $172.1 million, or 154.9 percent, to a loss of $61.0 million.
Gross profit dipped 39.6 percent from $609.8 million to $368.6 million.
Gross margins increased by approximately 210 basis points from 48.5 percent of sales to 50.5 percent of sales as a result of a “favorable mix of online and international sales.”
CEO’s Take: “Skechers, like most businesses around the world, has never faced a more challenging time than during the pandemic, which caused the closing of nearly every market worldwide,” stated Robert Greenberg, CEO of Skechers. “COVID-19 continues to be a serious concern globally, and the health and welfare of our team, partners and customers remain our number one priority. In the face of this on-going challenge, I am extremely proud of our company. We are a resilient organization driven by a dedicated and flexible team determined to do what it takes to not only survive but position ourselves for a return to profitability. Now, with more than 90 percent of our Skechers stores safely reopened and some markets in the early stages of recovery, we believe that we will remain a brand consumers and retailers trust to deliver comfort, quality, and style. We are hopeful that global economies will continue to improve, and as they do, we will continue to operate efficiently and judiciously during this pandemic.”