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Record-Setting Q2 Helps Skechers Bounce Back After Slow Start to FY19

Skechers stock jumped by more than 10 percent in after-hours trading on Thursday as the footwear company bounced back from a lackluster start to the year, delivering record net sales in the second quarter of its FY19.

In a Nutshell: The second quarter at Skechers was both record-setting and award-winning, as the company saw its products receive three new accolades over the period. Its GO Run 7 Hyper running shoe received the “Gear of the Year” award from Outside Magazine while the GO Run Maxroad 4 Hyper won “Best in Show” awards from both Shape and Runner’s World.

In its earnings reveal, the brand said that the construction of its first distribution center in China is well underway and that it would continue to expand its North American and European distribution capabilities. The brand expects these investments to further bolster its immediate sales growth and to trim its margins in the long term.

Sales: Net revenue for the brand was $1.259 billion in the second quarter, a new high and up 10.9 percent year-over-year, above analysts’ expectations of $1.22 billion. The brand said this was largely a byproduct of a 19.8 percent leap in international business—compared to a 1.5 percent increase in domestic sales. Company-owned direct sales rose by 14.4 percent and same-store sales grew by 4.9 percent.

COO David Weinberg said the biggest dollar increases in the second quarter occurred as a result of more money flowing in from new markets, especially India, the Middle East, China and Mexico.

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Only Skechers’ wholesale business saw a decrease, down 3.8 percent, as the company’s attention turned elsewhere. However, Skechers said that it expects to rebound in wholesale revenue throughout the back half of the year based on stronger performance in June and July. The brand expects to accrue revenue between $1.325 and $1.350 billion in the third quarter.

Earnings: Soundly beating analyst expectations of 34 cents, Skechers pulled in diluted earnings per share of 49 cents in the second quarter. Net earnings totaled $75.2 million while the brand’s earnings from operations increased by $29.7 million in the quarter, up 36.5 percent to $111.1 million.

Additionally, $18.5 million in extra expenses were paid out as a result of the brand opening 12 new stores in the quarter. Worldwide, when accounting for joint venture and licensed stores, the brand has opened 112 new stores since March 2019.

CEO’s Take: After touting his brand’s resilience in the first quarter, Skechers CEO Robert Greenberg said that his team has been able to respond successfully to a changing market.

“As the world continues to become closer and digital becomes a critical means of communicating and embracing trends to tell your brand’s story, it’s no longer what is happening in one market that matters; it’s what’s happening across all markets. We’re continuing to strategically view our business with a global lens as trends are traveling faster,” Greenberg said.

“Specifically, many of our key product styles are introduced at virtually the same time around the world, with nuances in certain markets, giving us the ability to replicate our success around the globe,” he continued. “In the second quarter, we saw this with the broad acceptance of our women’s and men’s sport and streetwear lines, as well as with the resurgence of our GOwalk collection and our fresh new Skech-Air styles.

“Our focus continues to be on comfort, innovation, style and quality as we design our diverse collection,” Greenberg concluded.