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Skechers Stock Falls After Record Q3 Sales

Skechers turned in record sales numbers in the third quarter of FY19 but it wasn’t enough to save the brand from a loss in share value as investors were disappointed by the footwear retailer’s underwhelming profits.

In a Nutshell: The third quarter at Skechers was defined by the success of the California brand’s international business. Skechers’ record revenue was supported by the highest penetration of international sales the brand has ever seen at 58.8 percent of sales. The company said this was mostly driven by strong sales in Germany, the U.K., Spain, India, the United Arab Emirates, Turkey, China, Russia and Japan.

Skechers said the global success it achieved in the quarter was the result of its “360-degree marketing efforts to create awareness and generate demand.” This was most apparent through its DTC business, which saw an increase of 13.3 percent in quarterly sales and a 7.7 percent increase in comparable sales, year-over-year.

However, due to profits not quite meeting Wall Street expectations, Skechers saw its stock price slide by around 4.5 percent on Wednesday morning, as the market reacted to the results. Skechers shares fell from $37.785 on Tuesday afternoon to $36.21 the next morning.

Sales: Skechers achieved record quarterly revenue of $1.354 billion in Q3, up 15.1 percent year-over-year and above the $1.35 billion expected by Wall Street analysts. International sales increased by 21.9 percent, making up a large portion of the retailer’s quarterly growth compared to a 6.8 percent domestic growth rate during the quarter.

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The quarter saw an increase in gross margin from 48.2 percent to 47.9 percent as a result of improved retail pricing and product mix internationally, slightly offset by an increase in the average cost per unit, domestically.

Skechers expects revenue to reach a range of $1.225 billion to $1.250 billion in the fourth quarter.

Earnings: Skechers’ net profit for Q3 was $103.1 million, resulting in earnings per share of 67 cents—slightly below the 69 cents expected by Wall Street analysts. Nevertheless, earnings were up 15.5 percent over the comparable period last year.

Skechers now expects the fourth quarter to provide EPS of 35 cents to 40 cents.

CEO’s Take: Unperturbed by the market’s reaction to the third quarter, Skechers CEO Robert Greenberg said he felt the quarter went to plan. Greenberg pointed to the rise of its “chunky fashion footwear” as a primary driver of the brand’s success and said Skechers expects strong holiday sales over the next few months.

“Skechers is firing on all cylinders. Our global marketing efforts are creating awareness and generating demand. Our product is innovative, relevant and comfortable. Importantly, we achieved a new sales record of $1.354 billion in the third quarter,” Greenberg explained.

“In the last three months, we saw our chunky fashion footwear on fashion week runways in New York, London, and Milan…we continue to lead the walking footwear category and delivered technical and innovative work, golf, sport and kids footwear,” Greenberg said. “We supported our key initiatives with a 360-degree approach to marketing by adding a comprehensive digital strategy to our traditional television campaigns.

“Our product offering is vast and reaches every demographic, and at its core, comfort is what consumers have come to know and expect from Skechers,” he concluded. “This, and our comprehensive marketing, differentiates Skechers from other brands, and is why we achieved growth across our domestic, international and direct-to-consumer businesses.”