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Skechers Gains on E-commerce Surge Amid Coronavirus Woes

Zacks Equity Research
·4 min read
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The coronavirus pandemic brought about a radical shift in consumers shopping habits, as we continue to witness online shopping shooting up and store sales getting marred. Like most retailers, Skechers U.S.A., Inc. SKX is also witnessing a surge in its e-commerce business wing. This trend was quite visible when the company reported second-quarter 2020 results a few weeks back.

However, the top line dropped significantly in the reported quarter on a year-over-year basis. The downside was caused by drab direct-to-consumer and wholesale businesses. Nevertheless, the company is seeing gradual improvements across certain markets. It is also undertaking strategic endeavors, like better management of spending’s and infrastructural improvements amongst others. Let’s delve deeper.

Pandemic Impairs Top Line Performance

During second-quarter 2020, Skechers top line came in at $729.5 million that fell 42% (or 41% on a constant-currency basis) from the year-ago quarter’s figure. Moreover, sales declined 37.8% and 47.3% across international and domestic businesses, respectively. The company’s international wholesale business fell 29.9% during the quarter. Domestic wholesale business declined 57.2%, as operations at many of the company’s wholesale customers were closed, primarily in the first half of the quarter.

Moreover, with almost all of Skechers stores shuttered at some point during the second quarter, its direct-to-consumer business fell 47.1%. Comparable same store sales in company-owned direct-to-consumer business plunged 45.6%, hurt by a decline of 35.9% in the United States and 66.9% internationally.

Online Business Offers Solid Support

Skechers e-commerce platform has been quite on the brighter side of things. Markedly, the company-owned e-commerce sales soared as much as 428.2% during the second quarter. This follows an improvement of 70% in the preceding quarter.

Skechers has been directing resources to enhance its digital capabilities, which certainly paid off well amidst the coronavirus influenced market conditions. The company’s efforts in this realm includes relaunching of websites, mobile application and loyalty program. Initiatives such as “Buy Online, Pick-Up in Store” and “Buy Online, Pickup at Curbside” are worth mentioning.

Strategic Plans Bode Well

In order to mitigate the impact of coronavirus pandemic, the company curtailed non-essential discretionary spending, which includes business travel, lowering of non-digital marketing expenditures and reassessment of store opening plans. The company also trimmed employee headcount and reduced compensation levels. Given the prevailing retail backdrop, the company is prioritizing on strategic projects.

Also, it is making strategic investments to improve infrastructure worldwide, primarily e-commerce platforms and distribution centers. We believe that greater emphasis on new line of products, store remodeling projects, inventory management, and global distribution platform bodes well for the company.

Bottom Line

Although Sketchers’ top line performance is yet to revive lost gleam, the company is optimistic regarding the early signs of recovery in some markets — especially in China. It is also witnessing green shoots in Australia, France, Indonesia, Germany, Spain, South Korea and Taiwan.

Such upsides along with a strong digital platform and other prudent strategic endeavors are likely to yield in the forthcoming periods. This Zacks Rank #3 (Hold) stock has gained 20.6% in the past three months compared with the industry’s rise of 22.9%.

3 More Stocks Looking Hot

SpartanNash Company SPTN, a Zacks Rank #1 (Strong Buy) stock, has a trailing four-quarter earnings surprise of 21.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General DG, a Zacks Rank #2 (Buy) stock, has a trailing four-quarter earnings surprise of 16.9%, on average.

Sprouts Farmers Market SFM has a long-term earnings growth rate of 9.2%. Currently, it carries a Zacks Rank #2.

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