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In spite of a challenging backdrop, Skechers U.S.A., Inc. (SKX - Free Report) reported stellar first-quarter 2021 results that gained from continued demand for comfort products as well as momentum in direct-to-consumer business. Markedly, both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year.
As more people are inoculated and getting comfortable shopping, traffic is increasing across retail stores. Also, the company’s digital business remains robust. Moreover, its international business continued to be a significant sales growth driver with China being the prominent market.
The company also provided second quarter and fiscal 2021 sales and earnings view based on current trends, backlogs and other indicators.
Notably, shares of this designer, developer, marketer and distributor of footwear increased 7.6% during the after-market trading session on Apr 22. We note that this Zacks Rank #2 (Buy) stock has gained 19.5% in the past three months against the industry's decline of 4%.
Let’s Analyze the Results
Skechers posted quarterly earnings of 63 cents a share that handily beat the Zacks Consensus Estimate of 49 cents. The bottom line also increased substantially from earnings of 32 cents reported in the year-ago period.
The company generated sales of $1,428.4 million that outpaced the Zacks Consensus Estimate of $1,289 million. We note that this was the eighth straight quarter of a revenue beat. Impressively, the top line rose 15% year over year buoyed by 20.2% increase in international business and an 8.5% jump in domestic sales. On a constant currency basis, total sales increased 11.7%.
Skechers U.S.A., Inc. Price, Consensus and EPS Surprise
Sales growth in the international business was driven by strong wholesale business. Notably, international wholesale segment sales surged 23.8% to $712.2 million, aided by 174.4% growth in China. However, this was partly offset by 8.1% decline in Europe and a 6.5% decrease in distributor sales. Also, subsidiary sales declined 4.8% in the quarter.
Again, increase in domestic sales came on the back of direct-to-consumer business, including a surge of 143% in e-commerce and growth of 13.6% in brick-&-mortar stores. This was partially offset by 0.9% decline in domestic wholesale sales of $374.7 million due to the unfavorable timing of shipments.
Meanwhile, the company’s direct-to-consumer sales increased 18.1% to $341.5 million. While domestic direct-to-consumer sales surged 28.4%, international direct-to-consumer business rose 1.9%. Overall, direct-to-consumer comparable same store sales rose 10.2%, reflecting an increase of 25.7% domestically but a decline of 27.4% internationally.
Looking at Margins
Gross profit increased 24.1% year over year to $679.6 million. Also, gross margin expanded 350 basis points to 47.6% owing to higher margins in both the international wholesale and direct-to-consumer segments. Higher average selling price across all channels and a favorable mix of online sales resulted in margin expansion.
SG&A expenses were $528 million, up 3.9% year over year. As a percentage of sales, SG&A expenses contracted 394 basis points to 37%. The higher SG&A expenses can be attributed to a 15.2% increase in selling expenses and a 2% rise in general and administrative expenses. Elevated selling expenses stemmed from a rise in domestic marketing expenses. The increase in general and administrative expenses can be attributed to higher global warehouse and distribution expenses, partly mitigated by lower retail labor expenses.
Earnings from operations of $157.7 million, rose meaningfully from $44.8 million in the prior-year period. Again, as a percentage of sales, the metric surged 743 basis points to 11%, reflecting robust sales performance and operating expense leverage.
Store Update
Skechers opened 12 company-owned stores in the first quarter, including six international locations. Additionally, the company closed 20 locations during the quarter, and expects to shutter one more store at the end of this month. The company added net 106 third-party Skechers stores in the quarter. This resulted in 3,989 stores, including 512 company-owned domestic stores, 334 company-owned international locations, 479 joint-venture stores and 2,664 distributor, licensee and franchise stores as of Mar 31, 2021. Meanwhile, the company has opened seven stores to-date in the second quarter.
Other Financial Aspects
As of Mar 31, 2021, cash and cash equivalents and short-term investments totaled $1,284.5 million and $106 million, respectively. The company ended the quarter with long-term borrowings (excluding current installments) of $717.6 million, and shareholders’ equity of $2,576.1 million, excluding non-controlling interests of $255.4 million. Further, total inventory was $1,067.4 million.
The company incurred capital expenditure of $84.2 million during the quarter under review. Management anticipates capital expenditures between $200 million and $250 million for the remainder year.
Outlook
Management envisions second-quarter fiscal 2021 sales between $1.45 billion and $1.50 billion and earnings in the band of 40-50 cents a share. Skechers guided fiscal 2021 sales between $5.8 billion and $5.9 billion and earnings in the band of $1.80-$2.00 per share. The company expects full-year gross margin to be flat or up marginally compared with 2020.
Abercrombie & Fitch (ANF - Free Report) has a long-term earnings growth rate of 18%. It presently sports a Zacks Rank #1.
Deckers (DECK - Free Report) witnessed a positive earnings surprise of 28.3% in the last reported quarter. The stock carries a Zacks Rank #2.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Skechers (SKX) Q1 Earnings Beat Estimates, Increase Y/Y
In spite of a challenging backdrop, Skechers U.S.A., Inc. (SKX - Free Report) reported stellar first-quarter 2021 results that gained from continued demand for comfort products as well as momentum in direct-to-consumer business. Markedly, both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year.
As more people are inoculated and getting comfortable shopping, traffic is increasing across retail stores. Also, the company’s digital business remains robust. Moreover, its international business continued to be a significant sales growth driver with China being the prominent market.
The company also provided second quarter and fiscal 2021 sales and earnings view based on current trends, backlogs and other indicators.
Notably, shares of this designer, developer, marketer and distributor of footwear increased 7.6% during the after-market trading session on Apr 22. We note that this Zacks Rank #2 (Buy) stock has gained 19.5% in the past three months against the industry's decline of 4%.
Let’s Analyze the Results
Skechers posted quarterly earnings of 63 cents a share that handily beat the Zacks Consensus Estimate of 49 cents. The bottom line also increased substantially from earnings of 32 cents reported in the year-ago period.
The company generated sales of $1,428.4 million that outpaced the Zacks Consensus Estimate of $1,289 million. We note that this was the eighth straight quarter of a revenue beat. Impressively, the top line rose 15% year over year buoyed by 20.2% increase in international business and an 8.5% jump in domestic sales. On a constant currency basis, total sales increased 11.7%.
Skechers U.S.A., Inc. Price, Consensus and EPS Surprise
Skechers U.S.A., Inc. price-consensus-eps-surprise-chart | Skechers U.S.A., Inc. Quote
Sales growth in the international business was driven by strong wholesale business. Notably, international wholesale segment sales surged 23.8% to $712.2 million, aided by 174.4% growth in China. However, this was partly offset by 8.1% decline in Europe and a 6.5% decrease in distributor sales. Also, subsidiary sales declined 4.8% in the quarter.
Again, increase in domestic sales came on the back of direct-to-consumer business, including a surge of 143% in e-commerce and growth of 13.6% in brick-&-mortar stores. This was partially offset by 0.9% decline in domestic wholesale sales of $374.7 million due to the unfavorable timing of shipments.
Meanwhile, the company’s direct-to-consumer sales increased 18.1% to $341.5 million. While domestic direct-to-consumer sales surged 28.4%, international direct-to-consumer business rose 1.9%. Overall, direct-to-consumer comparable same store sales rose 10.2%, reflecting an increase of 25.7% domestically but a decline of 27.4% internationally.
Looking at Margins
Gross profit increased 24.1% year over year to $679.6 million. Also, gross margin expanded 350 basis points to 47.6% owing to higher margins in both the international wholesale and direct-to-consumer segments. Higher average selling price across all channels and a favorable mix of online sales resulted in margin expansion.
SG&A expenses were $528 million, up 3.9% year over year. As a percentage of sales, SG&A expenses contracted 394 basis points to 37%. The higher SG&A expenses can be attributed to a 15.2% increase in selling expenses and a 2% rise in general and administrative expenses. Elevated selling expenses stemmed from a rise in domestic marketing expenses. The increase in general and administrative expenses can be attributed to higher global warehouse and distribution expenses, partly mitigated by lower retail labor expenses.
Earnings from operations of $157.7 million, rose meaningfully from $44.8 million in the prior-year period. Again, as a percentage of sales, the metric surged 743 basis points to 11%, reflecting robust sales performance and operating expense leverage.
Store Update
Skechers opened 12 company-owned stores in the first quarter, including six international locations. Additionally, the company closed 20 locations during the quarter, and expects to shutter one more store at the end of this month. The company added net 106 third-party Skechers stores in the quarter. This resulted in 3,989 stores, including 512 company-owned domestic stores, 334 company-owned international locations, 479 joint-venture stores and 2,664 distributor, licensee and franchise stores as of Mar 31, 2021. Meanwhile, the company has opened seven stores to-date in the second quarter.
Other Financial Aspects
As of Mar 31, 2021, cash and cash equivalents and short-term investments totaled $1,284.5 million and $106 million, respectively. The company ended the quarter with long-term borrowings (excluding current installments) of $717.6 million, and shareholders’ equity of $2,576.1 million, excluding non-controlling interests of $255.4 million. Further, total inventory was $1,067.4 million.
The company incurred capital expenditure of $84.2 million during the quarter under review. Management anticipates capital expenditures between $200 million and $250 million for the remainder year.
Outlook
Management envisions second-quarter fiscal 2021 sales between $1.45 billion and $1.50 billion and earnings in the band of 40-50 cents a share. Skechers guided fiscal 2021 sales between $5.8 billion and $5.9 billion and earnings in the band of $1.80-$2.00 per share. The company expects full-year gross margin to be flat or up marginally compared with 2020.
Other Stocks to Consider
L Brands has a long-term earnings growth rate of 13%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Abercrombie & Fitch (ANF - Free Report) has a long-term earnings growth rate of 18%. It presently sports a Zacks Rank #1.
Deckers (DECK - Free Report) witnessed a positive earnings surprise of 28.3% in the last reported quarter. The stock carries a Zacks Rank #2.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2021 today >>