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Skechers (SKX) Q4 Earnings Miss, Stock Up on Solid Sales
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Skechers USA Inc. (SKX - Free Report) continued with its trend of dismal earnings performance reporting its third consecutive miss in fourth-quarter 2016. The Manhattan Beach, CA-based footwear retailer delivered earnings per share of 4 cents, lagging the Zacks Consensus Estimate of 11 cents and down nearly 78.9% from 19 cents earned in the prior-year quarter.
Results in the quarter were mainly hurt by foreign currency transaction effects that negatively impacted gross margins, led to a rise in pre-tax expenses and weighed on the company’s wholesale business in the U.K. Additionally, the bottom line was impacted by higher effective tax rate in the quarter. Even an increase in net sales failed to act as a savior.
Despite the earnings miss, investors’ sentiments for Skechers seemed favorable due to the robust top-line performance and a decent initial guidance for first-quarter 2017. This was well evident from the nearly 10% increase in the company’s share price during the after-hours trading yesterday.
Overall, the company’s shares have declined about 10.8% in the past one year, underperforming the Zacks categorized Shoes & Retail Apparel industry that fell 5.7% in the same period.
The company reported net sales of $764.3 million that increased 5.8% from the year-ago quarter and surpassed the Zacks Consensus Estimate of $724 million. Further, the company’s record sales for the fourth quarter also exceeded its guidance range of $710–$735 million. Sales for the quarter mainly gained from solid performances at the company’s international wholesale and global company-owned retail businesses, offset by soft sales at the domestic wholesale segment.
Further, Skechers’ domestic eCommerce business contributed to sales growth in the quarter, registering a surge of 36.3%. The company currently operates eCommerce sites in Chile, Germany and the U.K., and has plans to launch more sites in Spain and Canada in the near term.
Gross profit for the reported quarter grew nearly 8% to $356.2 million, while gross margin expanded 100 basis points (bps) to 46.6%. Operating income came in at $28.3 million, down 48.3% from the prior-year quarter, while as a percentage of net sales it decreased 390 bps to 3.7%.
At the end of 2016, the company notes that its domestic and international backlogs are in the positive territory. Further, it registered the highest incoming order rate ever for its domestic wholesale subsidiary and distributor business for both the fourth quarter and full year.
Moreover, Skechers has begun 2017 on a strong note with solid comps delivered year to date. The company has delivered mid single-digit comps growth in January and high-single digit comps for the first week of February for its global company-owned retail stores.
Consequently, the company remains optimistic of first-quarter 2017 results. It expects to deliver flat to slightly positive sales for domestic wholesale business, while international business and company-owned retail stores are positioned to deliver growth. This growth is likely to come in spite of all-time record net sales reported in first-quarter 2016 and the shift of Easter into second-quarter 2017.
Further, management projects first-quarter 2017 net sales in the band of $1.05–$1.075 billion, compared with the Zacks Consensus Estimate of $1.04 billion. Additionally, the company anticipates earnings per share in the range of 50–55 cents for the first quarter.
Segmental Sales Synopsis
The domestic wholesale business recorded net sales decline of 11.8%, of which about 4.6% fall was attributed to the launch of the Star Wars footwear collection in fourth-quarter 2015.
Skechers’ international wholesale business revenues, which constituted 37.9% of total sales, advanced 17.1% on the back of a 34.3% rise in wholly-owned subsidiary and joint venture (JV) businesses. The company’s JV business registered growth of 61.9% for the quarter, led by a 48.5% increase in China and high double-digit gains in Hong Kong, India, and Malaysia. However, these were neutralized by 13.6% decline in distributor business on account of the transitioning of Latin American and Central Eastern European distributors to subsidiaries in 2015 and its Israel and South Korea distributors to JVs in second-half 2016.
On a combined basis, global company-owned retail business sales grew 13.9% driven by higher store count and comparable-store sales (comps) growth of 3.6%. Domestic retail sales rose 8.1%, while International retail sales surged 32.5%. Comps increased 1.7% at domestic retail stores and 10.3% at international retail stores.
Store Update
Skechers operated 571 company-owned retail outlets globally, comprising 158 international locations at the end of the fourth quarter. During the quarter, the company opened 18 stores, including one concept store each in Hawaii, Romania and Canada, and two concept stores each in Japan and the UK. Further, the company shut down three domestic and one international retail store in the quarter.
At the end of the fourth quarter, Skechers also operated 1,441 branded stores internationally, owned and operated by JVs, franchisees and distributors. Of the total, 490 are distributor-owned or franchise retail stores; 822 Skechers stores in its JV countries, and 129 are franchised stores in countries where Skechers has subsidiaries.
During fourth-quarter 2016, 179 third-party owned stores were opened, including 96 stores in China, 15 in both India and Saudi Arabia, 10 in Australia, five in Taiwan, four in both Malaysia and the UAE, three each in France, Indonesia, and Qatar, two each in Ireland, Mexico and Spain, and one each in Algeria, Brunei, England, Hong Kong, Italy, Japan, Kuwait, Netherlands, the Philippines, South Africa, Thailand, Trinidad, Turkey, Uruguay and Vietnam. Additionally, the company closed five third-party owned stores.
So far in first-quarter 2017, Skechers has opened 10 third-party owned stores and closed two. The company plans to open another 80–90 third-party owned stores in the first quarter and plans to open a total of 575–600 third-party owned stores through the remainder of 2017.
Looking ahead, the company anticipates opening about 70–90 Skechers stores in 2017, of which 14 are planned for the first quarter.
Other Financial Aspects
Skechers ended 2016 with cash and cash equivalents of $718.5 million, long-term borrowings (net of current installments) of $67.2 million, and shareholders’ equity of $1,603.6 million, excluding non-controlling interest of $81.9 million.
Capital expenditures incurred during the quarter were $39.5 million on store openings, remodels and corporate office and European distribution center upgrades. Management now envisions capital expenditures of about $50–$55 million for 2017, reflecting planned opening of an additional 70−90 retail outlets, corporate upgrades and store remodeling projects. Further, it expects to spend an incremental $25 million for infrastructure developments in its China JV.
Skechers U.S.A., Inc. Price, Consensus and EPS Surprise
Adidas, with a long-term earnings growth rate of 21%, has jumped nearly 10.1% in the past three months.
Francesca's Holdings, with a long-term earnings growth rate of 13.8%, has recorded a growth of 39.3% in the last six months.
Rocky Brands has grown nearly 9% in the past six months. The stock has a Value Style Score of ‘A’ and estimates have been stable in the last 30 days.
Zacks' Top 10 Stocks for 2017
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Skechers (SKX) Q4 Earnings Miss, Stock Up on Solid Sales
Skechers USA Inc. (SKX - Free Report) continued with its trend of dismal earnings performance reporting its third consecutive miss in fourth-quarter 2016. The Manhattan Beach, CA-based footwear retailer delivered earnings per share of 4 cents, lagging the Zacks Consensus Estimate of 11 cents and down nearly 78.9% from 19 cents earned in the prior-year quarter.
Results in the quarter were mainly hurt by foreign currency transaction effects that negatively impacted gross margins, led to a rise in pre-tax expenses and weighed on the company’s wholesale business in the U.K. Additionally, the bottom line was impacted by higher effective tax rate in the quarter. Even an increase in net sales failed to act as a savior.
Despite the earnings miss, investors’ sentiments for Skechers seemed favorable due to the robust top-line performance and a decent initial guidance for first-quarter 2017. This was well evident from the nearly 10% increase in the company’s share price during the after-hours trading yesterday.
Overall, the company’s shares have declined about 10.8% in the past one year, underperforming the Zacks categorized Shoes & Retail Apparel industry that fell 5.7% in the same period.
The company reported net sales of $764.3 million that increased 5.8% from the year-ago quarter and surpassed the Zacks Consensus Estimate of $724 million. Further, the company’s record sales for the fourth quarter also exceeded its guidance range of $710–$735 million. Sales for the quarter mainly gained from solid performances at the company’s international wholesale and global company-owned retail businesses, offset by soft sales at the domestic wholesale segment.
Further, Skechers’ domestic eCommerce business contributed to sales growth in the quarter, registering a surge of 36.3%. The company currently operates eCommerce sites in Chile, Germany and the U.K., and has plans to launch more sites in Spain and Canada in the near term.
Gross profit for the reported quarter grew nearly 8% to $356.2 million, while gross margin expanded 100 basis points (bps) to 46.6%. Operating income came in at $28.3 million, down 48.3% from the prior-year quarter, while as a percentage of net sales it decreased 390 bps to 3.7%.
At the end of 2016, the company notes that its domestic and international backlogs are in the positive territory. Further, it registered the highest incoming order rate ever for its domestic wholesale subsidiary and distributor business for both the fourth quarter and full year.
Moreover, Skechers has begun 2017 on a strong note with solid comps delivered year to date. The company has delivered mid single-digit comps growth in January and high-single digit comps for the first week of February for its global company-owned retail stores.
Consequently, the company remains optimistic of first-quarter 2017 results. It expects to deliver flat to slightly positive sales for domestic wholesale business, while international business and company-owned retail stores are positioned to deliver growth. This growth is likely to come in spite of all-time record net sales reported in first-quarter 2016 and the shift of Easter into second-quarter 2017.
Further, management projects first-quarter 2017 net sales in the band of $1.05–$1.075 billion, compared with the Zacks Consensus Estimate of $1.04 billion. Additionally, the company anticipates earnings per share in the range of 50–55 cents for the first quarter.
Segmental Sales Synopsis
The domestic wholesale business recorded net sales decline of 11.8%, of which about 4.6% fall was attributed to the launch of the Star Wars footwear collection in fourth-quarter 2015.
Skechers’ international wholesale business revenues, which constituted 37.9% of total sales, advanced 17.1% on the back of a 34.3% rise in wholly-owned subsidiary and joint venture (JV) businesses. The company’s JV business registered growth of 61.9% for the quarter, led by a 48.5% increase in China and high double-digit gains in Hong Kong, India, and Malaysia. However, these were neutralized by 13.6% decline in distributor business on account of the transitioning of Latin American and Central Eastern European distributors to subsidiaries in 2015 and its Israel and South Korea distributors to JVs in second-half 2016.
On a combined basis, global company-owned retail business sales grew 13.9% driven by higher store count and comparable-store sales (comps) growth of 3.6%. Domestic retail sales rose 8.1%, while International retail sales surged 32.5%. Comps increased 1.7% at domestic retail stores and 10.3% at international retail stores.
Store Update
Skechers operated 571 company-owned retail outlets globally, comprising 158 international locations at the end of the fourth quarter. During the quarter, the company opened 18 stores, including one concept store each in Hawaii, Romania and Canada, and two concept stores each in Japan and the UK. Further, the company shut down three domestic and one international retail store in the quarter.
At the end of the fourth quarter, Skechers also operated 1,441 branded stores internationally, owned and operated by JVs, franchisees and distributors. Of the total, 490 are distributor-owned or franchise retail stores; 822 Skechers stores in its JV countries, and 129 are franchised stores in countries where Skechers has subsidiaries.
During fourth-quarter 2016, 179 third-party owned stores were opened, including 96 stores in China, 15 in both India and Saudi Arabia, 10 in Australia, five in Taiwan, four in both Malaysia and the UAE, three each in France, Indonesia, and Qatar, two each in Ireland, Mexico and Spain, and one each in Algeria, Brunei, England, Hong Kong, Italy, Japan, Kuwait, Netherlands, the Philippines, South Africa, Thailand, Trinidad, Turkey, Uruguay and Vietnam. Additionally, the company closed five third-party owned stores.
So far in first-quarter 2017, Skechers has opened 10 third-party owned stores and closed two. The company plans to open another 80–90 third-party owned stores in the first quarter and plans to open a total of 575–600 third-party owned stores through the remainder of 2017.
Looking ahead, the company anticipates opening about 70–90 Skechers stores in 2017, of which 14 are planned for the first quarter.
Other Financial Aspects
Skechers ended 2016 with cash and cash equivalents of $718.5 million, long-term borrowings (net of current installments) of $67.2 million, and shareholders’ equity of $1,603.6 million, excluding non-controlling interest of $81.9 million.
Capital expenditures incurred during the quarter were $39.5 million on store openings, remodels and corporate office and European distribution center upgrades. Management now envisions capital expenditures of about $50–$55 million for 2017, reflecting planned opening of an additional 70−90 retail outlets, corporate upgrades and store remodeling projects. Further, it expects to spend an incremental $25 million for infrastructure developments in its China JV.
Skechers U.S.A., Inc. Price, Consensus and EPS Surprise
Skechers U.S.A., Inc. Price, Consensus and EPS Surprise | Skechers U.S.A., Inc. Quote
Zacks Rank & Key Picks
Skechers currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include Adidas AG (ADDYY - Free Report) , Francesca's Holdings Corporation and Rocky Brands Inc. (RCKY - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Adidas, with a long-term earnings growth rate of 21%, has jumped nearly 10.1% in the past three months.
Francesca's Holdings, with a long-term earnings growth rate of 13.8%, has recorded a growth of 39.3% in the last six months.
Rocky Brands has grown nearly 9% in the past six months. The stock has a Value Style Score of ‘A’ and estimates have been stable in the last 30 days.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>