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Skechers (SKX) Stock Up on Narrower-Than-Expected Q2 Loss

Zacks Equity Research
·6 mins read

Shares of Skechers U.S.A., Inc. SKX rose 9.3% during the after-market trading session on Jul 23, following the company’s better-than-expected second-quarter 2020 results. This Manhattan Beach, CA-based company reported narrower-than-expected loss. Further, the company’s sales surpassed the Zacks Consensus Estimate. However, the coronavirus pandemic did impact the company’s performance with both top and bottom line declining sharply from the prior-year period.

Nonetheless, management informed that more than 90% of the Skechers’ stores are now operational. Additionally, the company is seeing signs of recovery in some of the markets. It returned to growth in China and is also witnessing green shoots in Australia, France, Indonesia, Germany, Spain, South Korea and Taiwan. No wonder, the company’s e-commerce business remains sturdy amid the crisis. We note that the company-owned e-commerce sales soared 428.2% during the second quarter. This follows an improvement of 70% in the preceding quarter.

Shares of this Zacks Rank #3 (Hold) company have increased 17.2% in the past three months, outperforming the industry's growth of 10.8%.

Let’s Analyze the Results

This designer, developer, marketer and distributor of footwear reported quarterly loss of 44 cents a share narrower than the Zacks Consensus Estimate of loss of 67 cents. The company had posted earnings of 49 cents in the year-ago period.

Skechers generated sales of $729.5 million that surpassed the Zacks Consensus Estimate of $676.7 million. Notably, this marks the fifth straight quarter of revenues beat. However, the company’s top line declined 42% (or 41% on a constant currency basis) from the year-ago period. Sales decreased 37.8% and 47.3% across international and domestic businesses, respectively, owing to the pandemic.

The decline in international sales was partly offset by an 11.5% jump in sales in China, which includes e-commerce growth of 43%. The company’s international wholesale business fell 29.9% during the quarter. We note that the 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.

With almost all of Skechers stores shuttered at some point during the quarter under review, its direct-to-consumer business fell 47.1%. This reflects a decrease of 35.4% and 66.6% in direct-to-consumer domestic and direct-to-consumer international businesses, respectively. 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.

Gross profit fell 39.6% year over year to $368.6 million on account of lower sales volumes. However, gross margin expanded 210 basis points to 50.5% owing to a favorable mix of online and international sales.

Meanwhile, SG&A expenses were $432.1 million, down 14.5% year over year. However, as a percentage of sales, the metric increased to 59.2% from 40.1% in the year-ago quarter. The year-over-year decrease in SG&A expenses can be attributed to lower advertising and marketing expenses worldwide and reduction in compensation expenses due to the temporary closure of retail outlets and the furlough of select corporate staff. The company reported operating loss of $61 million against operating income of $111.1 million in the prior-year period.

Skechers U.S.A., Inc. Price, Consensus and EPS Surprise

Skechers U.S.A., Inc. Price, Consensus and EPS Surprise
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

During the quarter, Skechers opened three company-owned domestic stores and shuttered one, taking the total domestic count to 510, as of Jun 30. Further, it opened four company-owned international stores resulting in 308 stores at the end of the quarter. Notably, 21 joint venture stores were opened and eight closed in the reported quarter taking the count to 390. Furthermore, the company inaugurated 81 distributor, licensee and franchise stores in the quarter, and closed 60 such outlets, taking the overall store base to 2,407 at quarter-end. Adding these outlets, Skechers’ total store count stands at 3,615 as of Jun 30.

Other Financial Aspects

As of Jun 30, 2020, cash, cash equivalents and investments totaled $1,556 million. This reflects an increase of $524.5 million and $583 million from Dec 31, 2019 and Jun 30, 2019, respectively. The rise primarily reflects the drawdown of $490 million from senior unsecured credit facility in the first quarter.

The company ended the quarter with long-term borrowings (excluding current installments) of $680.1 million, and shareholders’ equity of $2,224.7 million, excluding non-controlling interests of $212.4 million. Further, total inventory was $1,027.7 million, up nearly 20.1% from the year-ago period. This increase reflects lower wholesale shipping and fall in retail activity due to the pandemic.

Management incurred capital expenditures of $75.9 million during the second quarter. Given the prevailing retail backdrop, the company has prioritized necessary and strategic projects, and now projects capital expenditures of $100-$150 million for rest of the year.

Stocks to Consider

Deckers DECK, a Zacks Rank #2 (Buy) stock, has a long-term earnings growth rate of 16.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hanesbrands HBI has a long-term earnings growth rate of 3.3%. Currently, it carries a Zacks Rank #2.

Crocs CROX, a Zacks Rank #2 stock, has a long-term earnings growth rate of 15%.

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