Skechers (SKX) Q3 Earnings & Revenues Beat Estimates, Rise Y/Y
Skechers U.S.A., Inc. SKX reported sturdy third-quarter 2023 results, with the top and bottom lines outpacing the Zacks Consensus Estimate and improving year over year. Results gained from strength in brands and demand for comfort technology products, aided by solid marketing and distribution capabilities. Also, continued broad-based strength globally, mainly in the company’s direct-to-consumer unit, further drove its performance.
Solid demand for comfort technology products, favorable pricing and a higher mix of Direct-to-Consumer sales boosted the results. Management remains optimistic about the strength in its brand and demand for comfort technology products, with improvements in working capital and inventory levels. The company looks forward to achieving its goal of $10 billion in annual sales by 2026.
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Over the past year, shares of this current Zacks Rank #3 (Hold) company have increased 37.6% compared with the industry’s 8.2% growth.
Q3 Highlights
Skechers posted third-quarter earnings of 93 cents per share, outpacing the Zacks Consensus Estimate of earnings of 78 cents per share. Also, the bottom line surged 69.1% from the year-earlier quarter’s figure.
SKX generated sales of $2,025 million, surpassing the consensus estimate of $2,011 million. The top line grew 7.8% year over year, driven by 8.6% growth in international sales and a 6.5% increase in domestic sales. Increases in both domestic and international sales were driven by robust Direct-to-Consumer (“DTC”) sales. On a constant-currency basis, total sales grew 6.7%.
Starting from the first quarter of 2022, Skechers has been segmental results for wholesale and DTC operations, including its joint venture businesses. We note that the company’s wholesale sales fell 1.4% to $1,174.6 million, while DTC rose 23.8% to $850.4 million. Our estimate for the company’s DTC sales was pegged at $786.2 million, representing an increase of 14.5%.
Wholesale sales declined 0.5% in Americas (“AMER”) and 8.3% in Europe, the Middle East & Africa (EMEA), partly offset by increases of 7.1% in Asia Pacific (“APAC”). Wholesale average selling price per unit increased by 10.3%, while unit volume dropped by 10.8%.
DTC sales growth included increases of 14.1% in domestic DTC sales and 33.3% in international DTC sales. DTC unit volume rose 18.8% and the average selling price rose 4.3%. Also, growth of 17.3% in the Americas, 24.2% in APAC and 60.8% in EMEA aided the segment’s performance.
Region-wise, sales increased 7.3% year over year to $1,017.5 million in the AMER, while the metric increased 2.3% to $480.4 million in EMEA and 14.4% year over year to $527.1 million in APAC. We expected the sales from the AMER, EMEA and APAC regions to increase by 4.8%, 1.7% and 16.2%, respectively, for the quarter under review.
Margins & Costs
Gross profit increased 21.3% year over year to $1,071.9 million. Also, the gross margin expanded 590 basis points (bps) to 52.9% due to a rise in average selling prices, a higher mix of DTC sales and lower freight costs. We expected the metric to expand by 140 bps to 48.5% for the quarter under review.
Total operating expenses grew 13.9% year over year to $858.7 million. The metric, as a percentage of sales, increased 230 bps to 42.4%. We expected total operating expenses to increase by 6.7% for the quarter. Selling expenses increased by 18.2% from the year-ago period’s level to $178.3 million. Also, general and administrative expenses jumped 12.8% to $680.4 million. Increased costs were due to higher brand demand creation expenditures, along with elevated facility costs such as rent, depreciation and labor.
Other Financial Aspects
As of Sep 30, 2023, cash and cash equivalents totaled $1,100.4 million, while short-term investments amounted to $64.1 million.
Skechers ended the quarter with long-term borrowings of $239.6 million and shareholders’ equity of $3,952.1 million, excluding non-controlling interests of $352.1 million. The total inventory decreased by 24% to $1,382 million.
In the third quarter of 2023, management repurchased roughly 805,486 shares of its Class A common stock for $40 million. Year-to-date, it bought back nearly 2.1 million shares for $100 million. As of Sep 30, 2023, nearly $325.7 million was available under SKX’s share buyback program.
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
Store Update
As of Sep 30, 2023, SKX had 4,992 stores, including 554 domestic stores, 1,039 international locations and 3,399 distributors, licensee and franchise stores.
In the year-to-date period, the company opened 26 domestic stores, 210 international stores and 637 distributors, licensee and franchise stores. Also, it closed 11 domestic stores, 76 international stores and 331 distributor, licensee and franchise stores in the same period.
Outlook
For 2023, management targets to accomplish sales between $7.95 billion and $8.05 billion compared with the earlier view of $7.95-$8.1 billion. It now envisions earnings per share (“EPS”) between $3.33 and $3.43 versus the prior expectation of $3.25 and $3.40.
For the fourth quarter of 2023, SKX is likely to achieve sales between $1.91 billion and $2.01 billion and EPS between 40 cents and 50 cents.
3 Better-Ranked Picks
Some better-ranked stocks in the broader Consumer Discretionary sector are GIII Apparel Group GIII, lululemon athletica LULU and Guess? Inc. GES.
GIII Apparel has a significant trailing four-quarter earnings surprise of 526.6%, on average. GIII currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales and earnings suggests growth of 2.4% and 14.7%, respectively, from the year-ago quarter’s reported numbers.
lululemon currently carries a Zacks Rank #2 (Buy). LULU has a trailing four-quarter earnings surprise of 6.8%, on average.
The Zacks Consensus Estimate for lululemon’s current financial-year sales and earnings suggests growth of 18.1% and 20.5%, respectively, from the prior-year quarter’s reported numbers.
Guess? currently sports a Zacks Rank #1. GES has a trailing four-quarter earnings surprise of 43.4%, on average.
The Zacks Consensus Estimate for Guess?’ current financial-year sales and earnings suggests growth of 3.4% and 9.9%, respectively, from the year-ago quarter’s reported figures.
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Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
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