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Shares of Skechers U.S.A., Inc. SKX declined 5.2% during the after-market trading session on Feb 4, owing to lower-than-expected earnings reported in fourth-quarter 2020. Moreover, earnings and sales declined year over year. The company’s domestic and international retail business continued to be impacted by soft traffic due to the stay-at-home restrictions across several regions as well as store closures due to the resurgence of COVID-19 in certain markets. However, the e-commerce and wholesale businesses continued to witness momentum, which partly cushioned the results.
Shares of this Zacks Rank #2 (Buy) company have gained 23.3% in the past three months compared with the industry's growth of 8.6%.
Let’s Analyze the Results
The designer, developer, marketer and distributor of footwear reported adjusted earnings of 24 cents a share, missing the Zacks Consensus Estimate of 27 cents. However, the bottom line declined 38.5% from earnings of 39 cents in the year-ago period.
Skechers generated sales of $1,324.7 million that surpassed the Zacks Consensus Estimate of $1,310.4 million. Notably, this marks the seventh straight quarter of a revenue beat. However, the company’s top line decreased 0.5% from the year-ago period on a 2.8% decline in the domestic business, offset by 1.1% growth internationally. Additionally, a 6.4% decline in direct-to-consumer sales, owing to temporary closures and reduced store operating hours, dented the top line. On a constant currency basis, sales declined 2.5% in the quarter.
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
Soft domestic business sales mainly resulted from lower retail sales as well as a 7.6% decline in domestic direct-to-consumer due to reduced traffic in stores and declines in foot traffic and tourism hurt domestic sales. This was considerably offset by a 142.7% rise in e-commerce sales and growth in the domestic wholesale business. Notably, sales for the company’s domestic wholesale business improved 1.2% in the quarter under review, owing to the demand for its athletic lifestyle, walking and work footwear products for men and women as well as high-single-digit growth in the men's category.
Meanwhile, sales growth in the international business was led by strong wholesale business, offset by soft retail sales. This was partly negated by higher joint venture and subsidiary sales, including 23.9% and 18.1% in China and Europe, respectively. International wholesale sales were aided by gains at its international wholesale subsidiaries and joint ventures, including 29.7% growth in China and 22.9% in Europe, offset by a 57.9% decline in distributor sales. Growth in Europe comprised of double-digit increases in Chile, the U.K., Germany and Spain, among others. However, international direct-to-consumer sales fell 4.4% on reduced traffic, reduced store hours and temporary closures in Europe, Canada and Latin America.
Overall, comparable same-store sales for the direct-to-consumer business plunged 13.4%, hurt by a decline of 9.8% in the United States and 21.7% internationally.
Gross profit improved 1.7% year over year to $648.4 million. Also, gross margin expanded 102 basis points (bps) to 48.9% driven by favorable mix of online and international sales and higher average selling price in the domestic wholesale business. Moreover, the company witnessed gross margin growth in all segments.
SG&A expenses were $595.7 million, up 8.6% year over year. As a percentage of sales, SG&A expenses expanded 380 basis points (bps) to 45%. The higher SG&A expenses can be attributed to a 10.4% increase in selling expenses and an 8.3% rise in general and administrative expenses. Elevated selling expenses stemmed from a rise in domestic marketing costs, while increase in warehouse and distribution costs globally caused general and administrative expenses to increase.
The company reported operating income of $57.7 million, down 38.7% from the prior-year period. Operating margin declined 270 bps to 4.4% on higher SG&A expenses despite a rise in gross margin.
Skechers opened 19 company-owned Skechers stores in the fourth quarter, including international locations. the international stores included a flagship store in Munich. Additionally, it closed six stores in the quarter. The company also added 108 third-party Skechers stores in the fourth quarter. This resulted in 3,891 stores, including 523 company-owned domestic stores, 331 company-owned international locations, 467 joint-venture stores and 2,570 distributor, licensee and franchise stores as of Dec 31.
Additionally, the company closed 18 stores so far in the first quarter of 2021. Through the rest of the first quarter, the company expects to close another 5-7 company-owned stores.
Other Financial Aspects
As of Dec 31, 2020, cash, cash equivalents and investments totaled $1.47 billion. This reflects an increase of $534.7 million from Dec 31, 2019. The rise primarily reflects the outstanding borrowings of $452.5 million in its senior unsecured credit facility.
The company ended the quarter with long-term borrowings (excluding current installments) of $679.4 million, and shareholders’ equity of $2,481.4 million, excluding non-controlling interests of $244.2 million. Further, total inventory was $1,016.7 million, down 5% from the year-ago period. The year-over-year decline reflects strong inventory management, which resulted in lower inventory levels in domestic wholesale and direct-to-consumer businesses, offset by higher inventory in international wholesale to drive growth in China.
Management incurred capital expenditure of $96.7 million in the fourth quarter. Given the prevailing retail backdrop, the company prioritized the enhancement of direct-to-consumer capabilities and augmenting global distribution infrastructure. It now expects capital expenditure of $275-$325 million for 2021.
Other Stocks to Consider
Steven Madden, Ltd. SHOO has a long-term earnings growth rate of 15%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs, Inc. CROX, also a Zacks Rank #1 stock, has a long-term earnings growth rate of 15%.
Deckers Outdoor Corporation DECK has a long-term earnings growth rate of 21% and a Zacks Rank #2 at present.
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