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Skechers (SKX) Beats on Q1 Earnings, Coronavirus Hampers Sales
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Skechers U.S.A., Inc. (SKX - Free Report) reported better-than-expected results for first-quarter 2020. However, both the top and bottom line fell year over year owing to the negative impacts of the coronavirus pandemic. Reduced activity in China majorly hurt the company’s quarterly performance. Margins also declined in the quarter. Owing to uncertainty tied to the current backdrop, management did not provide any revenue or earnings guidance.
Nevertheless, the company has been seeing strength in its e-commerce business amid such crisis. Impressively, its company-owned e-commerce sales increased more than 70% in the first quarter and crossed 250% in the month of April so far. Management will continue to invest in the e-commerce business, with rolling out a POS system, new websites and loyalty program. Lately, the company has been seeing a positive sales trajectory in its China business. It also looks to reopen stores globally.
Meanwhile, the company has taken steps to strengthen its business during such unprecedented downturns in the form of drawing down of its senior unsecured credit facility, controlling operating expenses and managing inventory levels.
Let’s Analyze the Results
This designer, developer, marketer and distributor of footwear reported adjusted quarterly earnings of 39 cents a share that outpaced the Zacks Consensus Estimate by a penny. However, the bottom line tumbled 45.1% from the year-ago period.
Skechers generated sales of $1242.3 million that beat the Zacks Consensus Estimate of $1,225 million, marking the fourth straight quarter of a positive sales surprise. However, the company’s top line declined 2.7% (or 1.2% on a constant-currency basis) from the year-ago period, thanks to significant reduction in activity in China in the months of February and March, and shutdown of majority global markets by mid-March. Sales declined 6.8% at its international business, while the same rose 2.9% in its domestic business. Its distributor business improved 1%.
The company’s international wholesale sales slipped 8.4% due to a 38.9% plunge in its joint ventures. The performance was mainly hurt by results in China, which saw a sales decline of 47%. The decline was somewhat offset by a 9.4% rise in sales at wholly-owned subsidiaries. However, domestic wholesale sales increased 9% from the prior-year period, mainly benefiting from strength in women's and men's Go, men and women's USA, and street and work categories.
Meanwhile, direct-to-consumer sales fell 4.2% owing to an 8%-fall domestically, offset by a 2.5% rise internationally. Comparable same store sales in company-owned direct-to-consumer business dropped 8.1%, hurt by a decline of 4.7% in the United States and 16.6% internationally. This reflects the closure of most of its stores since mid-March. However, we note that in the first two months of the reported quarter, worldwide comparable same store sales grew 9.8% across company-owned direct-to-consumer business.
Gross profit in the reported quarter dropped 7.2% from the prior-year figure to $547.7 million. Moreover, gross margin contracted 220 basis points to 44.1% on soft international results.
Meanwhile, SG&A expenses came in at $508.1 million, up 18.2% year over year, and as a rate of sales, the metric grew 720 bps to 40.9%. Higher selling expenses were mainly attributable to increased digital advertising costs domestically. Also, higher costs in relation to the direct-to-consumer business led to the upside.
Operating income came in at $44.8 million, down significantly from $165.9 million in the prior-year quarter. Operating margin also contracted 940 bps to 3.6% in the first quarter on lower gross margin coupled with higher SG&A as a rate of sales.
Shares of this Zacks Rank #5 (Strong Sell) company have lost 35.1% in the past three months, underperforming the industry's 14.8% decline.
Other Financial Aspects
Skechers ended the quarter with cash and cash equivalents of $1,158.8 million, long-term borrowings (excluding current installments) of $669.2 million, and shareholders’ equity of $2,347.7 million, excluding non-controlling interests of $240.7 million. Further, total inventory was $985.7 million, up nearly 33% from the year-ago period.
Management incurred capital expenditures of $61.3 million during the first quarter. Given the prevailing retail backdrop, the company has prioritized necessary and strategic projects, and now projects capital expenditures of $100-$125 million for rest of the year. This will mainly be used for the completion of its first company-owned distribution facility in China. Also, it has slowed down new store openings.
Store Update
During the quarter, Skechers opened 14 company-owned stores in the United States, while shuttered three, taking the total domestic count to 508, as of Mar 31. Further, it opened two company-owned international stores and 25 joint venture stores in the reported quarter. Simultaneously, the company closed one company-owned international store and two joint venture stores, reaching the total company-owned international store count to 304 and total joint venture store count to 377.
Furthermore, the company inaugurated 51 distributor, licensee and franchise stores in the first quarter, and closed 58 such outlets, taking the overall store base to 2,386 at quarter-end. Adding these outlets, Skechers’ total store count stands at 3,575 as of Mar 31.
Activision Blizzard, Inc. , also a Zacks Rank #2 stock, boasts an expected long-term earnings growth rate of 12.2%
Central Garden & Pet Company (CENT - Free Report) has a long-term earnings growth rate of 5.9% and a Zacks Rank #2.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
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Skechers (SKX) Beats on Q1 Earnings, Coronavirus Hampers Sales
Skechers U.S.A., Inc. (SKX - Free Report) reported better-than-expected results for first-quarter 2020. However, both the top and bottom line fell year over year owing to the negative impacts of the coronavirus pandemic. Reduced activity in China majorly hurt the company’s quarterly performance. Margins also declined in the quarter. Owing to uncertainty tied to the current backdrop, management did not provide any revenue or earnings guidance.
Nevertheless, the company has been seeing strength in its e-commerce business amid such crisis. Impressively, its company-owned e-commerce sales increased more than 70% in the first quarter and crossed 250% in the month of April so far. Management will continue to invest in the e-commerce business, with rolling out a POS system, new websites and loyalty program. Lately, the company has been seeing a positive sales trajectory in its China business. It also looks to reopen stores globally.
Meanwhile, the company has taken steps to strengthen its business during such unprecedented downturns in the form of drawing down of its senior unsecured credit facility, controlling operating expenses and managing inventory levels.
Let’s Analyze the Results
This designer, developer, marketer and distributor of footwear reported adjusted quarterly earnings of 39 cents a share that outpaced the Zacks Consensus Estimate by a penny. However, the bottom line tumbled 45.1% from the year-ago period.
Skechers generated sales of $1242.3 million that beat the Zacks Consensus Estimate of $1,225 million, marking the fourth straight quarter of a positive sales surprise. However, the company’s top line declined 2.7% (or 1.2% on a constant-currency basis) from the year-ago period, thanks to significant reduction in activity in China in the months of February and March, and shutdown of majority global markets by mid-March. Sales declined 6.8% at its international business, while the same rose 2.9% in its domestic business. Its distributor business improved 1%.
The company’s international wholesale sales slipped 8.4% due to a 38.9% plunge in its joint ventures. The performance was mainly hurt by results in China, which saw a sales decline of 47%. The decline was somewhat offset by a 9.4% rise in sales at wholly-owned subsidiaries. However, domestic wholesale sales increased 9% from the prior-year period, mainly benefiting from strength in women's and men's Go, men and women's USA, and street and work categories.
Meanwhile, direct-to-consumer sales fell 4.2% owing to an 8%-fall domestically, offset by a 2.5% rise internationally. Comparable same store sales in company-owned direct-to-consumer business dropped 8.1%, hurt by a decline of 4.7% in the United States and 16.6% internationally. This reflects the closure of most of its stores since mid-March. However, we note that in the first two months of the reported quarter, worldwide comparable same store sales grew 9.8% across company-owned direct-to-consumer business.
Gross profit in the reported quarter dropped 7.2% from the prior-year figure to $547.7 million. Moreover, gross margin contracted 220 basis points to 44.1% on soft international results.
Meanwhile, SG&A expenses came in at $508.1 million, up 18.2% year over year, and as a rate of sales, the metric grew 720 bps to 40.9%. Higher selling expenses were mainly attributable to increased digital advertising costs domestically. Also, higher costs in relation to the direct-to-consumer business led to the upside.
Operating income came in at $44.8 million, down significantly from $165.9 million in the prior-year quarter. Operating margin also contracted 940 bps to 3.6% in the first quarter on lower gross margin coupled with higher SG&A as a rate of sales.
Shares of this Zacks Rank #5 (Strong Sell) company have lost 35.1% in the past three months, underperforming the industry's 14.8% decline.
Other Financial Aspects
Skechers ended the quarter with cash and cash equivalents of $1,158.8 million, long-term borrowings (excluding current installments) of $669.2 million, and shareholders’ equity of $2,347.7 million, excluding non-controlling interests of $240.7 million. Further, total inventory was $985.7 million, up nearly 33% from the year-ago period.
Management incurred capital expenditures of $61.3 million during the first quarter. Given the prevailing retail backdrop, the company has prioritized necessary and strategic projects, and now projects capital expenditures of $100-$125 million for rest of the year. This will mainly be used for the completion of its first company-owned distribution facility in China. Also, it has slowed down new store openings.
Store Update
During the quarter, Skechers opened 14 company-owned stores in the United States, while shuttered three, taking the total domestic count to 508, as of Mar 31. Further, it opened two company-owned international stores and 25 joint venture stores in the reported quarter. Simultaneously, the company closed one company-owned international store and two joint venture stores, reaching the total company-owned international store count to 304 and total joint venture store count to 377.
Furthermore, the company inaugurated 51 distributor, licensee and franchise stores in the first quarter, and closed 58 such outlets, taking the overall store base to 2,386 at quarter-end. Adding these outlets, Skechers’ total store count stands at 3,575 as of Mar 31.
Looking for High-Performance Stocks
BJ's Wholesale Club Holdings, Inc. (BJ - Free Report) has an expected long-term earnings growth rate of 11% and currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Activision Blizzard, Inc. , also a Zacks Rank #2 stock, boasts an expected long-term earnings growth rate of 12.2%
Central Garden & Pet Company (CENT - Free Report) has a long-term earnings growth rate of 5.9% and a Zacks Rank #2.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>