After another sharp rise in the first quarter, Skechers' international wholesale turnover has turned into the largest part of its wholesale business, driving another robust quarterly sales increase and a surge in profits for the American footwear brand.
David Weinberg, Skechers' chief operating officer and chief financial officer, said in a conference call with analysts that the group's wholesale turnover soared by 47.1 percent outside the U.S. during the first quarter to reach about 42.9 percent of its global revenues. Adding the company's own retail sales, revenues generated outside the U.S. at wholesale and retail accounted for 47.7 percent of the company's total revenues for the three months – getting closer to a previously set goal of generating 50 percent of its turnover outside its domestic market.
The company's total sales jumped by 27.4 percent to $978.8 million for the quarter. The rise was inflated by a shift in the timing of shipments from the second into the first quarter, due to the company's buoyant sales in Europe and the expansion of its Chinese wholesale business through franchising. However, some orders were pulled forward into the fourth quarter last year and Skechers had to deal with political issues in countries such as Brazil and the Ukraine.
Skechers achieved the strongest sales increases with its direct sales subsidiaries in Europe and its joint ventures in Asia. Its Chinese joint venture alone accounted for deliveries of about 2.6 million pairs, while 1.5 million pairs were shipped to Germany, and a similar quantity to the U.K. and to a distributor in the United Arab Emirates who handles Skechers sales in much of the Middle East and Africa.
Together, the company's foreign subsidiaries raised their sales by 46.1 percent. This part of the business was enlarged after Skechers decided to set up its own companies to cover several countries in Central and Eastern Europe and in Panama in the second half of last year. The strongest growth rates came from Japan, Canada and Spain, while the strongest growth in value came from the U.K., Germany and Canada.
The group's Asian joint ventures delivered a sales rise of 94 percent, with China surging by more than 120 percent in the quarter. The group's Chinese turnover jumped to about $220 million last year and Skechers previously predicted that it would reach $350 to $440 million this year, but Weinberg said last week that the lower end of that guidance ought to be raised. Skechers boasted 169 stores and 1,380 points of sale in China at the end of the quarter.
Sales to foreign distributors increased by 8.5 percent for the quarter. The UAE, Taiwan, Philippines, Scandinavia and Russia were all named as countries with growing sales. Foreign distributors, joint ventures and franchisees ran 872 stores at the end of the quarter, after 78 openings in the three months. Fifteen more have been opened so far in the second quarter and Skechers predicts that another 160 to 165 of such stores will open by the end of the year.
Skechers projects further growth to come from international markets, due to the expansion of its range and more retail accounts coming on board, requiring investments in infrastructures. The company shipped a monthly record of three million pairs from its European distribution center in February. The facility in Wallonia is set to expand to more than 90,000 square meters in the second quarter, and the latest upgrades in terms of automation should be fully completed later this year.
The wholesale business in the U.S. was up by 12.1 percent in volume as well as in value. Sales of women's products jumped by 10.8 percent while sales of the smaller men's category were up by 22 percent.
Skechers attributed growing demand in the U.S. to the brand's widening product range and advertising that appeals to various age groups, featuring personalities such as Meghan Trainor, Sugar Ray Leonard, Demi Lovato and Ringo Starr. Another factor was the demand for athletic footwear, aided by the performance of endorsees such as Meb Keflezighi, the U.S. marathon runner.
Skechers' own retail sales advanced by 23.2 percent for the quarter, up by 15.3 percent in the U.S. and by 59 percent in international markets. Same-store sales increased by 8.2 percent in the U.S. and 17.7 percent in other markets, adding up to an overall 9.8 percent hike in comparable store sales.
Skechers had 525 company-owned stores by the end of the quarter, 130 of them outside of the U.S., after nine openings and one closure during the three-month period. The company expects to open 55 to 65 more stores for the balance of the year, including 20 to 25 in the second quarter.
Taken all together, Skechers boasted 1,397 branded stores run by the company or its partners at the end of March, after 87 openings in the first quarter. It has already opened another 17 in the second quarter. The group says it's on track for the number of Skechers stores to reach over 1,600 by the end of the year.
Skechers' gross profit margin advanced by 0.9 percentage points to 44.2 percent for the three months. Price increases implemented in the quarter helped to mitigate unfavorable exchange rate changes. Operating profit reached $138.6 million, which was an increase of 57.1 percent and amounted to an operating profit margin of 14.2 percent, up by 2.7 percentage points. Skechers' quarterly net earnings jumped by 74.1 percent to $97.6 million.
Skechers' management pointed out that the second quarter of 2015 had been particularly strong, as some shipments were shifted from the first into the second quarter, while the opposite occurred this year. Skechers predicts that its sales for the second quarter will reach a record of between $875 and $900 million, assuming no significant shifts in deliveries from one quarter to another. As international markets take up a larger part of the business, Skechers said its first and third quarters should become more important as a percentage of the entire year, meaning there could be upside for the third quarter.
