It has been about a month since the last earnings report for Skechers (SKX - Free Report) . Shares have added about 8.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Skechers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Skechers Q3 Earnings Miss, Revenues Top Estimates
After four straight quarters of earnings beat, Skechers USA, Inc. reported a negative earnings surprise during the third quarter of 2019. Nonetheless, the top line came ahead of the Zacks Consensus Estimate for the second consecutive quarter. Moreover, both sales and earnings per share continued to increase year over year. Looking ahead, management also provided a decent fourth-quarter view.
This designer, developer, marketer and distributor of footwear delivered quarterly earnings of 67 cents a share that missed the Zacks Consensus Estimate by a couple of cents. However, the bottom line improved 15.5% from 58 cents reported in the year-ago period. On a constant currency basis, earnings came in at 71 cents a share, up 22.4% year over year.
Management guided fourth-quarter 2019 earnings in the range of 35-40 cents a share. The company had reported earnings of 31 cents in the final quarter of 2018.
The company generated net sales of $1,354 million that increased 15.1% (or 17.2% on a constant currency basis) from the year-ago quarter and also beat the Zacks Consensus Estimate of $1,339 million.
The company now anticipates fourth-quarter 2019 net sales in the band of $1.225-$1.250 billion, up from $1.081 billion reported in the prior-year period.
Skechers’ international and direct-to-consumer businesses acted as the primary catalysts. The company’s domestic wholesale business also returned on growth path. Management informed that the company witnessed growth across all regions with prominent markets being Germany, the U.K., Spain, India, Turkey, UAE, China, Russia and Japan. Moreover, the joint venture in Mexico is performing well. The company is making strategic investments to improve infrastructure worldwide, primarily e-commerce platforms and distribution centers. The company is also focusing on designing and developing of new products.
Let’s Analyze the Results
Skechers witnessed sales growth of 21.9% across international business (representing a record 58.8% of net sales) and 6.7% in its domestic business. The company’s international wholesale business grew 21.7%, while company-owned direct-to-consumer business rose 13.3%.
Notably, the company’s domestic wholesale business jumped 5%, following a decline of 3.8% in the preceding quarter. The company anticipates domestic wholesale business to grow during the fourth quarter.
The company’s international wholesale business improved on account of 4.4% increase in distributor business, 24.2% jump in joint ventures and 27% growth in wholly owned subsidiaries.
Management expects international and direct-to-consumer businesses to sustain momentum. Comparable store sales in company-owned stores and e-commerce jumped 7.7%, comprising 6.8% in the United States and 9.9% internationally.
Gross profit for the reported quarter grew 15.8% to $653.1 million. Moreover, gross margin expanded 30 basis points to 48.2% on account of improved retail pricing and product mix in its international businesses. This was partly offset by higher average cost per unit in domestic business.
Operating income came in at $147.4 million, up 19% from the prior-year quarter, while operating margin increased 40 basis points to 10.9%.
Other Financial Aspects
Skechers ended the reported quarter with cash and cash equivalents of $824 million, long-term borrowings (excluding current installments) of $39.8 million, and shareholders’ equity of $2,174.5 million, excluding non-controlling interest of $167 million.
Management incurred capital expenditures of roughly $48.9 million during the quarter and plans to spend approximately $85-$90 million in the remaining part of the year.
During the quarter, Skechers opened 12 company-owned domestic stores and closed one taking the total count to 488. Again, two company-owned international stores were opened, while two were shuttered, which kept the total count unchanged at 291. Further, the company ended the quarter with 318 joint-venture stores and 2,210 distributor, licensee and franchise stores. Total store count at the end of the quarter stood at 3,307, including 779 company-owned stores.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
At this time, Skechers has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Skechers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.