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Record Sales at Skechers Leads to Double-Digit Stock Gains at Year End

Skechers started its new fiscal year on the right foot late last week, releasing a year-end earnings report that revealed the footwear brand’s record-breaking sales performance in both Q4 and for all of FY18—boosting its stock value by nearly 16 percent and giving Skechers its highest valuation since April 2018.

In a Nutshell: Skechers credited its success to several product highlights it delivered throughout the year, including its heritage D’lites collection, the GOwalk line and popular men’s slip-ons.

The company’s cash, cash equivalents and investments totaled $1.07 billion by the end of the fiscal year, increasing $312.2 million from Dec. 31, 2017, a gain of 41.4 percent. Total inventory for Skechers decreased from a year ago, falling $9.8 million or 1.1 percent, to a total of $863.3 million when including inventory in transit. Working capital for Skechers stands at $1.62 billion, an increase of $114.2 million from the year prior.

Skechers also announced that it had repurchased $100 million worth of shares over the year, culminating in the purchase of 1.7 million Class A common stock shares for $41.9 million in Q4. Skechers also began construction on a new distribution center in China during Q4 and also expanded its global headquarters in Manhattan Beach, California in January.

A week prior to the release of the earnings report, the brand filed a lawsuit against Adidas, preempting its efforts to halt the sales of Skechers brand shoes it says infringes on its “Three Stripe” patent.

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Sales: In Q4, Skechers registered total sales of $1.08 billion, from $970.6 million the year prior, an increase of 11.4 percent. This was a company record for Q4, driven by an 18.4 percent increase in international wholesale and a 7.5 percent increase in global retail sales. Q4 comparable same-store sales were up 1.1 percent as well, with a 3 percent increase internationally, compared to a 0.4 percent increase at home.

Total sales for the year reached $4.64 billion, up 10.3 percent from $4.16 billion in FY17, another company record.

Double-digit increases in Skechers’ company-owned retail, distributor, subsidiary and joint venture sales were spurred on by record-high orders to distribution centers in South America, North America, Japan and Europe. The company said international business accounted for 54 percent of its sales for the year.

Skechers also issued sales guidance for FY19’s first quarter, anticipating revenue of $1.275 billion to $1.3 billionwhich would be a Q1 sales record for the company, provided things go as planned.

Earnings: Net earnings for the company totaled $301 million for the year, leading to diluted earnings per share of $1.92. In Q4 alone, net earnings increased $47.4 million with a $0.31 increase in diluted earnings per share. Earnings from operations increased 14.4 percent to $54.9 million for FY18 and increased 50.4 percent to $28 million for Q4.

Gross margins widened by 90 basis points for the year, up 47.7 percent. Skechers says this was the result of higher domestic margins from improved pricing and product mix but that it was partially offset by a negative foreign currency exchange rate. The company was able to lower margins while simultaneously growing its expenses by $8.8 million in China to support its expansion into Asia. Skechers also opened 47 new stores worldwide in FY18, raising expenses by an additional $9.4 million.

Additionally, Skechers mentioned a one-time tax expense of $99.9 million due to the Tax Cuts and Jobs Act, leading to a loss of $0.64 per share.

The company issued guidance of share growth between $0.70 and $0.75 for the first quarter of FY19, a result of the record sales it anticipates for the period.

CEO’s Take: Robert Greenberg, CEO of Skechers said, “In 2018, our mindset was to seek new growth opportunities by comprehensively evaluating our domestic and international businesses while drilling down to specific regions and channels of distribution. These opportunities were across our product lines with proven styles, new designs and collaborations, and in select regions where we saw great potential.”

Greenberg continued, “We also focused on growing our online business around the world—improving the functionality of our e-commerce sites in the United States and China, and launching an e-commerce platform in India, while also increasing our global retail footprint, ending 2018 with 2,998 Skechers Company-owned and third-party-owned stores. Additionally, we began delivering Spring 2019 product with the relevant marketing support, and we also started our Fall/Winter 2019 meetings with key accounts. We are looking forward to what we believe will be a new first quarter sales record.”