Skechers USA again posted record revenues for the first quarter ended March 31, after surpassing the threshold of $4 billion in annual sales for the first time in 2017. However, investors apparently felt that the brand's strong momentum may be softening, sending the share price down by nearly 24 percent, after gains of nearly 54 percent last year and more than 11 percent since the start of 2018.
The reason for their caution was that Skechers' management is projecting earnings per share of only 38 percent to 43 percent for the second quarter on sales of between $1,120 million and $1,145 million, instead of an analysts' consensus estimate of earnings of 55 to 57 cents a share on sales of $1,150 million.
Skechers' management explained that some key U.S. retailers and foreign distributors are going to shift deliveries to the second half of this year, which would indicate high inventories at retail. While the sell-in was very strong in the quarter in the U.S. and abroad, bad weather conditions depressed retailers' sell-through. Combined with the shift in the Easter holidays, wholesale revenues are predicted to decline by a mid-single digit in the U.S. during the current quarter.
Overall, the company's sales jumped by 16.5 percent in the first quarter to $1,250 million, as a result of a 17.9 percent increase in the international wholesale business, an 8.5 percent increase in the domestic wholesale business, and a 26.4 percent increase in the company-owned global retail business. Comparable store sales at directly operated stores worldwide advanced by 9.5 percent. They were up by 7.0 percent in the U.S. and by 17.6 percent internationally.
As in the past year, the international business was the main growth driver, accounting for 54.0 percent in revenues, and the management continues to see this segment as its greatest growth opportunity.
In particular, the company's newly expanded European Distribution Center experienced a record quarter for shipment volumes. The company's international subsidiary and joint venture businesses reached a combined quarterly increase in the mid-twenties, thanks in part to higher sales through the company's single-brand stores. There are now 2,197 company-owned or third-party Skechers stores outside the U.S., up from 760 in mid-2015.
The number of pairs shipped rose by 15.1 percent in the latest quarter, but average selling prices were off by 5.7 percent, primarily due to the product mix and the strength of several collections that have a lower average selling price. Men's and kids footwear achieved double-digit growth, while women's shoes had mid-single-digit gains. The growth was generalized across multiple lines, including On the Go, Bobs, sandals, sport and work.
The international wholesale business represented 46.2 percent of total sales and contributed $87.6 million more than in the year-ago quarter. An increase of 25.7 percent in Skechers' subsidiary and joint venture businesses was partly offset by a 22.2 percent drop in the distributor business. As expected, this decrease was primarily the result of the unstable political and economic environment in the Middle East, combined with the timing of several key partners' shipments. Sales at the company's wholly-owned international subsidiaries grew by 25.9 percent, while joint venture sales rose by 25.4 percent.
All of the company's European subsidiaries achieved double-digit growth, with the U.K., Germany, Italy and Spain experiencing the highest dollar gains. Canada also continued to achieve strong gains. China remained a dominant force, with a 30 percent jump to 4.4 million in the number of pairs sold in the quarter through a retail base of approximately 800 Skechers free-standing stores and 2,400 other points of sales combined with a strong e-commerce business, which grew at a high double-digit rate. In addition, India, South Korea and Singapore all had considerable dollar and percentage sales gains.
At year-end, there were 1,994 Skechers branded stores owned and operated by international distribution partners, joint ventures and a growing network of franchisees. In the first quarter, 79 new third-party owned stores were opened, including 21 in China, 19 in India, 7 in South Korea and 11 in Europe. Some 27 stores closed down in the quarter.
In the company-owned global retail business, sales improved by 26.4 percent, which was the result of sales increases of 62.1 percent in its foreign stores and 13.5 percent in its domestic retail stores. At quarter-end, there was 657 company-owned Skechers retail stores, of which 203 were operating outside the U.S. In the first quarter, Skechers opened 15 stores including a new store in London's Covent Garden. Three stores were closed.
Adding to the overall growth, Skechers' domestic e-commerce business progressed by 12.7 percent for the quarter. Skechers also has company-owned e-commerce sites in Chile, Germany, the U.K., Spain and Canada.
The company's gross margin jumped by 2.3 percentage points to 46.7 percent, boosted by its international business and favorable foreign exchange rates, as well as lower sales to margin-dilutive distributors. The net income jumped by 25.2 percent to $117.7 million, partly helped by an $8 million tax benefit from the recent Tax Cuts & Jobs Act.
The management expects to open another 450 to 475 third-party Skechers branded stores for the remainder of 2018, on top of an additional 60 to 75 company-owned stores.
