Skechers U.S.A., Inc. SKX reported second-quarter 2022 results, with the top and bottom lines outpacing the Zacks Consensus Estimate. Despite macroeconomic headwinds, supply-chain issues and COVID-related restrictions in China, results gained from demand across domestic and international channels, driven by strong wholesale and direct-to-consumer sales.
In the quarter, the company was able to meet customer demand for comfort footwear, expanded Skechers Arch Fit offering, and launched Skechers Viper Court. It also signed brand ambassadors, particularly in Europe and Asia, as well as a rising Latin music artist and a global pop sensation, to further strengthen its brand awareness across key markets.
Shares of the well-known footwear company gained more than 2% in after-hours trading on Jul 26. Shares of SKX have lost 10.2% in the past three months but came ahead of the industry’s 12.8% decline.
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Skechers posted second-quarter earnings of 58 cents a share, beating the Zacks Consensus Estimate of 54 cents. However, the bottom line declined 34.1% from 88 cents earned in the year-earlier quarter. This includes 11 cents of adverse impacts related to foreign currency.
SKX generated sales of $1,867.8 million, surpassing the Zacks Consensus Estimate of $1,783 million. The top line grew 12.4% year over year, owing to a 15.4% increase in domestic sales and a 10% rise in international sales. On a constant-currency basis, total sales grew 16.4%. Management highlighted that quarterly sales set a record for Skechers despite the persistent pandemic-led headwinds, including worldwide store closures and supply-chain concerns.
Starting from the first quarter of 2022, Skechers reported segmental results for wholesale and direct-to-consumer operations, including its joint venture businesses. Both segments recorded growth, with Wholesale improving 18.3% and Direct-to-Consumer (DTC) growing 4.3% in the second quarter. Wholesale sales increased 18.3% mainly on 34.9% growth in AMER. The Wholesale volume also expanded 14.8%, while the average selling price inched up 3.1%.
DTC sales jumped 4.3% on growth of 13.5% in EMEA, 3.7% in AMER and 2.7% in APAC. DTC average selling price climbed 5.3%, with volumes remaining flat year over year.
The Zacks Rank #3 (Hold) stock is on track with its new IGBC Platinum pre-certified distribution center in Mumbai, India. The facility is expected to be fully operational by mid-2023. Another distribution center is slated to open in early 2023 in Vancouver, Canada. The company expanded its current distribution facility in Colombia this year and revealed plans to open another facility in 2024.
Region-wise, sales increased 21% year over year to $1,033.9 million in the Americas and 8% to $374.5 million in EMEA. The metric remained flat year over year at $459.4 million in APAC due to COVID-19 restrictions in China. On the flip side, strength in India, South Korea and Malaysia acted as growth drivers.
However, restrictions have been easing since June and the company has been making efforts to expedite its shipments to meet the demand in the China region. Also, the expansion of its China distribution center is likely to begin this year and be completed in 2024.
Margins & Costs
Gross profit increased 5.2% year over year to $897.6 million. The gross margin declined 330 basis points (bps) to 48.1% due to increased freight expenses per unit, somewhat offset by a rise in average selling prices.
Total operating expenses grew 14% year over year to $743.4 million. The metric rose 50 bps as a percentage of sales to 39.8%. Selling expenses increased 17.8% from the year-ago period to $166.6 million due to a rise in global demand creation spend. Also, general and administrative expenses jumped 12.9% to $576.8 million due to elevated volume-driven labor, and warehouse and distribution costs, as well as higher rent.
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
In the reported quarter, Skechers opened 46 company-owned stores, including 15 in the United States, nine in China and seven in India. Simultaneously, SKX shuttered 34 locations in the quarter, comprising five concept stores in the United States and 24 in China. SKX’s 2,993 third-party stores included 123 stores inaugurated in the second quarter. As of Jun 30, 2022, SKX had 4,355 stores, including 526 domestic stores, 836 international locations, and 2,993 distributor, licensee and franchise stores.
Also, Skechers has opened four company-owned stores, including two international stores, from the start of the third quarter to date. It aims to open an additional 115-135 stores by 2022 end.
Other Financial Aspects
As of Jun 30, 2022, cash and cash equivalents totaled $751.9 million, while short-term investments amounted to $105.1 million. Skechers ended the quarter with long-term borrowings of $253.3 million and shareholders’ equity of $3,416.3 million, excluding non-controlling interests of $301.8 million. Further, the total inventory was $1,563.9 million.
In the reported quarter, management repurchased roughly 636,000 shares for $24.2 million of its Class A common stock. As of Jun 30, 2022, $450.8 million was available under the company’s share repurchase program.
Skechers incurred capital expenditure worth $74.1 million in the second quarter. Management anticipates capital expenditure of $250-$300 million for 2022.
Skechers continues to project 2022 sales of $7.2-$7.4 billion. The Zacks Consensus Estimate for 2022 sales is currently pegged at $7.30 billion. Earnings per share are envisioned to be $2.60-$2.70, down from the prior stated $2.75-$2.95. Notably, the company delivered adjusted earnings of $2.59 in 2021. The Zacks Consensus Estimate for 2022 earnings is pegged at $2.81.
Skechers envisions third-quarter 2022 sales between $1.80-$1.85 billion, and earnings of 70-75 cents a share. The Zacks Consensus Estimate for sales and earnings for the third quarter is currently pegged at $1.83 billion and 84 cents per share, respectively.
SKX also expects sturdy demand for its comfort technology footwear, better marketing efforts and brand strength to aid sales growth in the back half of 2022.
Stocks to Consider
Here are three better-ranked stocks to consider — Designer Brands DBI, Kroger KR and Capri Holdings CPRI.
Designer Brands, which designs, produces and retails footwear and accessories, currently sports a Zacks Rank #1 (Strong Buy). DBI has a trailing four-quarter earnings surprise of 102.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Designer Brands’ current financial-year sales and EPS suggests growth of 6.9% and 16.5%, respectively, from the year-ago period’s reported figures.
Kroger, which provides an array of goods ranging from household essentials, groceries and electronics to toys and apparel for men, women and kids, currently carries a Zacks Rank #2 (Buy). KR has a trailing four-quarter earnings surprise of 22.1%, on average.
The Zacks Consensus Estimate for Kroger’s current financial year’s sales and EPS suggests growth of 3.2% and 4.1%, respectively, from the year-ago period’s reported figures. KR has an expected EPS growth rate of 9.9% for three-five years.
Capri Holdings provides women’s and men’s accessories, footwear and ready-to-wear, and wearable technology, watches, jewelry, eyewear, and a full line of fragrance products. It currently carries a Zacks Rank #2. CPRI has a trailing four-quarter earnings surprise of 49.3%, on average.
The Zacks Consensus Estimate for Capri Holdings’ current financial year’s sales suggests growth of 3.8% from the year-ago period’s reported figure, while the same for EPS indicates a decline of 4.9%. CPRI has an expected EPS growth rate of 11.3% for three-five years.
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