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Where Skechers Is Investing for the Next Stage of Growth

Despite the latest wave of Covid-19 cases bringing another round of store closures in the fourth quarter, Skechers on Thursday turned in its best sales comparison in a year.

Coming up against its strongest-ever Q4 results—last year, Skechers reported a 23.1 percent sales jump—net sales at the company fell just 0.5 percent year-over-year last quarter. Speaking on a call with investors, chief operating officer David Weinberg attributed the company’s “strong” performance to a 1.2 percent increase in its domestic wholesale business and 1.1 percent growth internationally.

However, despite improvement in domestic wholesale—Weinberg said the growth came primarily from athletic casual, walking and work footwear—Skechers’ overall domestic business decreased 2.8 percent. Leading this decline was a 7.6 drop in direct-to-consumer sales, reflecting the negative impact of reduced traffic at brick-and-mortar stores. Though the company expects to see some improvement in physical sales as more people receive vaccinations, Weinberg said Skechers believes in-person shopping will continue to be impacted for at least the first half of the year.

Meanwhile, domestic e-commerce rose 142.7 percent. Weinberg noted that Skechers is currently completing an update to its point-of-sale system to better connect with its e-commerce channel. Additionally, he said Skechers is finalizing enhancements to its loyalty program it believes will further improve the company’s omnichannel offerings.

Stay-at-home guidelines, reduced hours and temporary closures, primarily in Europe, Canada and Latin America, accompanied a 4.4 percent drop in Skechers’ international DTC business, Weinberg said.

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While DTC sales declined 6.4 percent worldwide, comparable same-store DTC sales dropped 13.4 percent, including decreases of 9.8 percent domestically and 21.7 percent internationally.

Looking at the quarter as a whole, Weinberg said U.S. consumer traffic at Skechers’ stores fell approximately 35 percent and operating hours were reduced by about 20 percent. At international company-owned stores, the company effectively lost 17 percent of the days available to sell during the quarter, he added. At quarter-end, nearly 10 percent of company-owned stores remained closed.

Skechers’ international wholesale business grew 2.5 percent year-over-year. This, Weinberg said, came as the result of an increase in its joint-venture business of 19.4 percent, led by 29.7 percent growth in China, and subsidiary growth of 12.7 percent, led by Latin America and Europe.

In addition to enhancing the company’s POS and e-commerce systems, Skechers has also invested in its supply chain. Along with a new logistics center in Colombia, Weinberg highlighted a new distribution center in the United Kingdom that he said will serve the region in the post-Brexit environment. Meanwhile, the automation of the company’s new 1.5-million-square-foot distribution center in China remains on track for full implementation by midyear and it continues to work on the expansion of its North American distribution center, he added.

According to chief financial officer John Vandemore, total inventory dropped 5 percent year-on-year to $1.02 billion, largely attributable to decreases domestically and in Europe, and partially offset by increases in China. “Overall, we feel confident about our inventory position and continue to actively manage our supply to meet customer demand, positioning the business constructively for the balance of this year,” Vandemore said.

Cash and cash equivalents totaled $1.37 billion an increase of $545.9 million, or 66.2 percent, from Dec. 31, 2019. The increase primarily reflected the company’s outstanding borrowings of $452.5 million on its senior unsecured credit facility, Vandemore said. Total debt, including both current and long-term portions, was $735 million as of Dec. 31, up from $121 million at the same time the prior year. This increase, Vandemore added, primarily reflects the drawdown of the company’s senior unsecured credit facility in the first quarter of 2020.

“The fourth quarter, like all of 2020, was a challenge,” Vandemore said. “However, we saw many encouraging trends in our performance. Our brand strength, distinctive and compelling value proposition and healthy balance sheet gives us continued confidence that Skechers is poised for a return to growth in 2021, and beyond.”

Skechers reported fourth-quarter net sales of $1.32 billion, down from $1.33 billion in the prior-year period. For the full year, net sales came in at $4.6 billion, a 11.9 percent decline from 2019’s $5.22 billion.

The company reported net earnings of $53.3 million, or $0.34 per diluted share, in the fourth quarter, down 10.4 percent from the prior-year period’s $59.5 million. Net income included a one-time tax benefit of $15.9 million resulting from changes in the tax structure of Skechers’ operations and related benefits provided by the CARES Act. Excluding this, adjusted diluted earnings per share fell 38.5 percent to $0.24.

Looking at full-year 2020, net earnings declined 71.6 percent from $346.6 million in 2019 to $98.6 million last year. Adjusted diluted earnings per share totaled $0.65, down 71.1 percent from the prior year’s $2.25.

Gross margin rose year-over-year in the fourth quarter from 47.9 percent to 48.9 percent. For the full year, gross margin was relatively flat, ending the year at 47.6 percent, only slightly down from 47.7 percent the prior year.

“With comfort, value and style at the forefront of our product design, we are a key footwear brand during these difficult times,” Weinberg said. “We have an exceptionally strong balance sheet and ample liquidity, both important to our success in the quarter and to position ourselves for future growth. Our backlog has improved across many distribution channels, a positive sign for many countries. We believe our business will continue to be impacted by the global pandemic in the first half of 2021. Though we are cautious due to the overall health crisis, we remain confident in our strategic initiatives, the relevance of our brands and our efforts to develop new product innovations and the many opportunities for growth in both the near and the long term.”