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How Raising Prices Drove Skechers’ Record Second Quarter

A higher average selling price and a significant increase in units sold drove Skechers to its second-straight record sales quarter, the company reported Thursday.

Year-over-year, the footwear brand saw triple-digit or near-triple-digit gains almost every way it sliced its business. Domestic wholesale sales, for example, soared 206 percent. International wholesale sales climbed 95 percent, driven by 150 percent growth in Skechers’ European subsidiaries and 122 percent growth in distributor sales. Direct-to-consumer comparable same-store sales increased 109 percent, including 96 percent domestically and 165 percent internationally.

Even when compared to 2019, Skechers recorded substantial gains. According to David Weinberg, the company’s chief operating officer, both domestic and international sales rose more than 30 percent compared to two years ago. In Europe, sales were up 85 percent.

In China, where Skechers’ rivals hit a speed bump over their statements on Xinjiang, Skechers saw sales climb 51 percent year over year and 68 percent versus 2019. By comparison, Nike—one of the brands at the center of this spring’s consumer boycottreported just a 17 percent year-on-year improvement in the quarter ended May 31.

“We are confident that Skechers’ innovative collection of comfort footwear and apparel resonated with consumers as they began returning to work, dining out, shopping and traveling,” Weinberg said in a call with investors. “Where markets were open and restrictions eased, sales exceeded our expectations and in the markets that were largely closed due to the local health guidelines, we still performed well given the circumstances.”

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According to Weinberg, “nearly every product category” grew in the second quarter, with the highest gains coming from sport, kids, casual and seasonal footwear. A shifted focus to higher-priced items and reduced promotional activity helped boost these sales, he noted.

“What we’ve done is increased the performance and the features in our footwear to make it a higher price and seen as a higher-price product in the marketplace, not only raising prices of existing [product],” Weinberg said.

The executive also attributed Skechers’ success to consumers’ shift toward a “more relaxed lifestyle” that prioritizes comfort both on the weekend and at work. “I think it’s common thought process that comfort is here to stay—more people are working from home, people are more comfortable when they go to work,” Weinberg added.

The COO also briefly addressed the ongoing coronavirus outbreak in Vietnam, which has already forced multiple Nike factories to temporarily shut down. For now, it appears, the company is not particularly exposed. According to Weinberg, south Vietnam, where the outbreak is currently centered, is a “smaller piece” of Skecher’s overall footprint in the country. “We’re meeting our shipping, but it certainly could be faster,” he added. And should Skechers be forced to shut down much of its supply chain in the country, he was confident the company could “certainly handle” a two-week interruption.

“I don’t know at what point it becomes catastrophic,” Weinberg said. “It has to become part of what’s happening everyplace else and the supply chain in general.”

All in all, Skechers’ second-quarter sales grew 127 percent compared to the year-ago period to $1.66 billion. Compared to 2019, its sales climbed 32 percent. Its gross profit jumped 131 percent versus a year ago to $849.5 million, while its gross margin inched up 72 basis points to 51.2 percent.

SG&A costs jumped 51 percent year-over-year, led by a 120 percent jump in selling expenses due to higher global advertising costs, Skechers said. General and administrative expenses climbed 40 percent due to higher incentive compensation and labor costs, as well as higher global warehouse and distribution expenses, it added.

Skechers’ inventory totaled $1.06 billion at the end of the quarter, a 4 percent increase from Dec. 31. The company attributed the bump to growth in the international wholesale segment. Cash, cash equivalents and investments totaled $1.32 billion, a decrease of $258.5 million, or 16% from Dec. 31.

Net earnings for the second quarter totaled $137.4 million, or $0.88 per diluted share. This compared to a $68.1 million loss a year earlier.