It has been about a month since the last earnings report for Skechers U.S.A., Inc. (SKX Quick QuoteSKX - Free Report) . Shares have added about 12.7% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Skechers Q4 Earnings Miss, Sales Beat Estimates

Skechers continued with its trend of dismal earnings performance reporting its third consecutive miss in fourth-quarter 2016. This footwear retailer delivered earnings per share of $0.04, lagging the Zacks Consensus Estimate of $0.11 and down nearly 78.9% from $0.19 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.

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. Additionally, the company anticipates earnings per share in the range of $0.50–$0.55 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.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Skechers U.S.A., Inc. Price and Consensus

 

Skechers U.S.A., Inc. Price and Consensus | Skechers U.S.A., Inc. Quote

VGM Scores

At this time, Skechers' stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the stock is suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.