For its 30th year in business, Skechers reported a banner year in 2022, with record annual sales of over $7 billion. The milestone year now has the footwear company aiming to hit $10 billion by 2026.
In A Nutshell: “2022 was another milestone year for Skechers as we achieved record annual sales of $7.4 billion,” David Weinberg, chief operating officer of Skechers, said on the earnings call. “This increase of $1.1 billion, or 18 percent, from the prior year was the result of four quarterly sales records, including fourth quarter sales of $1.88 billion.”
Fourth quarter growth was driven by increases of nearly 16 percent in wholesale combined with almost 11 percent in direct-to-consumer (DTC). Wholesale results were driven by double-digit growth in the U.S., international distributors, Germany, India, Mexico and Spain. Domestic sales primarily drove the strength in Skechers’ DTC business. The growth within the quarter was partially offset by a 23 percent decrease in its China sales, which were impacted by COVID-related restrictions, including the temporary closure of more than 1,000 Skechers stores in November of last year.
“With the recent elimination of the zero-COVID policy, we believe that our business in China will improve throughout 2023,” Weinberg said. “In addition, while the inventory challenges at our domestic distribution center have been difficult to navigate, we are seeing improvements and remain confident in the strength of our brand and the demand for our products. We ended the year strong and expect to see continued growth in 2023.”
Net Sales: Fourth quarter sales increased 13.5 percent due to a 22.3 percent increase domestically and an 8.7 increase internationally, led by strength in wholesale sales. All segments experience growth, with wholesale increasing 15.7 percent and DTC rising 10.8 percent. On a constant currency basis, sales increased by 19.1 percent.
Wholesale sales growth of $142.4 million, or 15.7 percent, was led by an increase in EMEA of 31.1 percent and AMER of 18.6 percent. Wholesale volume increased by 9.4 percent and average selling price increased by 6.3 percent.
“As a consumer-driven company, we focus on what shoppers want and deliver it as efficiently as possible to our global wholesale partners,” Weinberg said on the call. “This allows us to reach our loyal base where and when they want to shop, be it department stores, family channels or their favorite specialty store.”
DTC sales growth of $81 million, or 10.8 percent, was led by increases in AMER of 27 percent and EMEA of 19.1 percent. DTC volume increased by 14.8 percent and the average selling price decreased by 3.5 percent.
Gross margin was 48.4 percent, a decrease of 40 basis points, primarily due to higher cost per unit and increased promotions, partially offset by average selling price increases.
Operating expenses increased $107.9 million, or 15.1 percent, and as a percentage of sales, increased 60 basis points to 43.8 percent. Selling expenses increased $19 million, or 13.7 percent, due to higher global digital and brand demand creation expenditures. General and administrative expenses increased $88.9 million, or 15.4 percent, and as a percentage of sales, increased 60 basis points to 35.4 percent. Increased expenses were primarily driven by volume-driven labor and distribution expenses in addition to higher costs at the domestic distribution center due to supply chain and logistic challenges.
“We also experienced supply chain disruptions that created inventory congestion throughout the distribution channel as we move through the year,” Weinberg told analysts. “We overcame those challenges and achieved record annual sales due to the flexibility, creativity and dedication of the global Skechers organization, offices and distribution centers our sales teams in the field and our retail associates throughout our global network of Skechers stores, each and every one of our team members is an important contributor to our ongoing success.”
Net Earnings: Earnings from operations decreased $6.5 million, or 6.9 percent, to $86.6 million.
Net earnings were $75.5 million, and diluted earnings per share were $0.48 compared with prior year net earnings of $402.4 million and earnings per share of $2.56. Adjusted diluted earnings per share were $0.48 compared with the preceding year adjusted diluted earnings per share of $0.43, excluding certain items related to tax benefits and legal settlements.
The company’s effective tax rate in the fourth quarter was 9.6 percent.
“Skechers’ record fourth quarter and full year sales demonstrate the strength of our brand as the comfort technology leader and the robust demand for our innovative product portfolio which drove global growth across channels despite volatile economic conditions,” John Vandemore, chief financial officer of Skechers, said on the call. “We are making considerable progress on addressing the short-term challenges from elevated inventory levels and congestion in the supply chain, while staying keenly focused on executing against and investing in our long-term growth strategy.”
Full-year sales increased 18 percent, reflecting a 20 percent increase domestically and a 16.6 percent increase internationally, with the largest contribution derived from wholesale sales. Both segments experienced increases, wholesale increasing 23.2 percent and DTC rising 10.2 percent. The company’s sales increased by 22.6 percent on a constant currency basis.
Wholesale sales growth of $873.8 million, or 23.2 percent, was led by increases in AMER of 28.7 percent and EMEA of 33.9 percent. Wholesale volume increased by 18.2 percent and the average selling point increased by 4.8 percent. DTC sales growth of $260.5 million, or 10.2 percent, was led by increases in AMER of 13.8 percent and EMA of 25.3 percent. DTC volume increased by 6.6 percent and the average selling price increased by 3.4 percent.
Gross margin was 47.2 percent, a decrease of 230 basis points, primarily due to higher freight and logistics costs, partially offset by average selling price increases.
Net earnings were $373 million, and diluted earnings per share were $2.38 compared with the prior year’s net earnings of $741.5 million and earnings per share of $4.73. Adjusted diluted earnings per share were $2.38 compared with the preceding year adjusted diluted earnings per share of $2.59, excluding certain items related to tax benefits and legal settlements.
For the fiscal year 2023, the company believes it will achieve sales between $7.75 billion and $8 billion, with diluted earnings per share of between $2.80 and $3. Skechers also said it believes that for the first quarter of the new year, it will achieve sales between $1.8 billion and $1.85 billion and diluted earnings per share of between $0.55 and $0.60. Further, the company believes that total capital expenditures will be between $300 million and $350 million in 2023.
CEO’s Take: “Starting our fourth decade of business as a $7.4 billion company that grew over $1 billion this past year is a phenomenal achievement and one that leaves me with overwhelming pride for the dedication, creativity and insight of the global Skechers team. With their flexibility and drive, along with the support of both our loyal partners and consumers, we expect to achieve continued success across all areas of the business,” Robert Greenberg, CEO of Skechers, said. “With the goal of $10 billion in sales by 2026, our aim is high, but we believe attainable due to several factors. Our range of comfort technology products is broader and more appealing than ever, and many new attention-grabbing collaborations are planned throughout this year. We are committed to our marketing strategy and will be revealing even more surprising star power in 2023, which we expect will enable us to reach a more diverse audience. And we have the global infrastructure and talented teams in place to deliver what consumers want—comfort, style, innovation and quality at a reasonable price from a brand they trust. 2022 was an incredible year for us and I’m looking forward to what 2023 will bring.”