Despite the headwinds from the Covid-19 pandemic and the uncertainties related to its resurgence, Skechers is preparing for significant growth in 2021 as it further expands its distribution footprint and gears up for the biggest shopping day in its fastest-growing market.
Skechers reported third-quarter adjusted earnings per share of 53 cents on sales of $1.3 billion, above consensus Wall Street projections of 36 cents earnings per share on $1.2 billion in sales. While the sales numbers represent a 3.9 percent decrease year over year, the footwear maker also saw a significant increase in revenue of 78.3 percent quarter over quarter led by another robust e-commerce performance that sparked 172.1 percent growth.
China and Europe had the best performances across markets, with China delivering sales growth of 23.9 percent and Europe reeling in 18.1 percent growth, led by Germany and France. The success in these markets is influencing the company’s expansion efforts, particularly when it comes to building out its digital infrastructure.
Skechers is nearing completion of a new 1.5-million-square-foot distribution center in China and recently completed a U.K.-based logistics center that’s on track to open by the end of the year, adding to existing facilities in Europe, South America and North America. The company is also upgrading its e-commerce platforms in Japan, South America, Europe, India and Canada as it continues to see more global demand through that channel.
“We are working diligently on the expansion of our North American distribution center [in California], which we expect to be completed in the second half of 2021 bringing our facility to 2.6 million square feet,” David Weinberg, chief operating officer of Skechers, said in an earnings call. “We also completed the expansion of our European distribution center [in Belgium], bringing it to 2.1 million square feet and expect to open our first U.K.-based distribution center by the end of this year. Also we have opened new distribution centers in Panama and Colombia, all to pave the way for growth as well as increased e-commerce business.”
In the U.S., the casual sneaker brand has hopped on board with new in-store fulfillment options, introducing BOPIS and curbside pickup in more than 500 Skechers retail locations during the quarter.
Coming off the heels of store closures that extended into the summer, Skechers opened 213 new stores in from July through September, while closing 58 permanently, bringing the total store count to 3,770 worldwide.
Net earnings for Skechers in the quarter were $45.3 million and diluted earnings per share were 29 cents. Adjusted to exclude the effects of a one-time charge related to the cancellation of restricted share grants associated with a legal settlement, adjusted net earnings were $63.6 million and adjusted diluted earnings per share were 41 cents.
Total inventory was $1.05 billion, a year over year increase of $163 million or 18.3 percent, primarily reflecting international growth, particularly in China for the upcoming Singles Day holiday.
“I think generally, I would describe [expectations for Singles Day] as optimistic, because you have seen e-commerce perform very well in country,” John Vandemore, chief financial officer of Skechers, said in the call. “Now we even characterize China as still being a little bit more biased toward e-commerce right now as they continue to recover from the effects of the pandemic. I think we’re better prepared, quite frankly, than we’ve been in past years. How do you manage the margin against the opportunity in the marketplace is always the big question. But based on the brand performance we’ve seen year-to-date and the lineup, we feel pretty good. But the reality is it’s a pretty focused selling season.”
While major athletic footwear players such as Nike and Under Armour are prioritizing a direct-to-consumer approach as wholesale faces headwinds, Skechers appears to be doing its best when selling its brand elsewhere: while domestic wholesale sales increased 6.3 percent and international wholesale sales had a slight 0.5 percent dip, its direct-to-consumer business decreased 16.9 percent.
Weinberg described the domestic wholesale sales jump as the “result of pent-up demand and the relevance of our product.”
Overall direct-to-consumer same store sales decreased 22.1 percent, including decreases of 20.4 percent domestically and 26.1 percent internationally.
“It’s not like this was one or two customers,” Vandemore said, referring to the wholesale success. “We actually saw a broad improvement in the categories. As we mentioned, men’s, women’s and kids’ were up. And that’s a really good sign that the product is working. Our Arch Fit product, our Max Cushioning, a lot of our key products for the year are really resonating with consumers both in our own retail, but also with our retail partners and wholesale. And that’s showing really well in the demand that we’re seeing in the wholesale channel.”
Gross margins remained relatively flat at 48.1 percent of sales as a result of higher promotional activity internationally, partially offset by a favorable mix of online and international sales.
Skechers is not providing further financial guidance at this time given the ongoing business disruption and substantial uncertainty surrounding the impact of the pandemic on its business globally.