Skechers revealed plans to seek growth opportunities in the metaverse after posting better-than-expected results in the fourth quarter of 2021 and sales records in every quarter of the year.
Revenues in the three months ended Dec. 31 increased by 24.4 percent to $1,648 million, topping analysts’ expectations by about $100 million, with growth led by the robust performance of its direct-to-consumer (DTC) and international operations along with an improvement in its domestic wholesale business. On a constant currency basis, sales were up by 24.5 percent.
Net income rose to $422.6 million from $68.6 million the year earlier, while diluted earnings per share (EPS) jumped to $2.56 from $0.34. Adjusted EPS came in at $0.43, up from $0.24 the year earlier and above an analysts’ consensus of $0.34. The overall gross margin inched down by 0.30 percentage points to 48.6 percent, mainly as a result of higher freight costs amid supply chain constraints that have given some signs of easing but are expected to continue to be a challenge in the first half of this year.
“In 2022, we’ll be introducing more innovative and comfort technology products, developing multi-platform marketing campaigns with our growing roster of ambassadors…and rolling out more Skechers e-commerce sites around the world. We are finalizing plans to enter the metaverse, creating an entirely new opportunity for the Skechers brand,” said Robert Greenberg, CEO, adding that 2022 is expected to be another record year.
Skechers’ growth in the fourth quarter was led by international sales, which increased by 34 percent and represented 65 percent of total sales for the quarter. Domestic sales rose by 10 percent.
Skechers’ DTC sales grew by 30.3 percent to $483.7 million, as average selling prices increased by 25 percent and e-commerce posted “double-digit” growth. DTC comparable store sales increased by 21.1 percent.
DTC growth stood at 52 percent internationally, primarily driven by strong retail sales across Latin America and Europe, despite temporary closures of several stores in Austria and the Netherland due to new Covid-19 restrictions in the period. Comparable international DTC sales were up by 35.5 percent.
Domestic growth in the DTC channel stood at 17 percent, and the channel reflected a 24 percent gain in brick-and-mortar stores and a 12 percent decrease in domestic e-commerce amid low inventory availability in certain periods of the quarter. The domestic e-commerce business was nonetheless up by 115 percent compared to the fourth quarter of 2019.
The international wholesale business grew by 30.1 percent to $851.2 million in the fourth quarter. Skechers highlighted a 124 percent increase in its distributor business - led by the Middle East and followed by Russia, Scandinavia, India and Turkey – although management said this sales channel has not yet returned to its pre-pandemic levels. Subsidiary sales increased by 47 percent year over year as markets heavily impacted by the Covid-19 pandemic last year recovered, including the U.K., Spain and India. Joint ventures grew by 10 percent, led by a 9 percent increase in China and fueled by strong e-commerce demand.
Skechers’ domestic wholesale business saw revenues rise by 4.6 percent to $313.0 million, led by growth in women’s and kids categories and reflecting an improving but still challenging supply chain situation. Management pointed to positive underlying trends with domestic wholesale partners, including strong sell-through rates and higher average selling prices and highlighted a “very strong” January for this sales channel.
In the fourth quarter, Skechers opened an additional net 128 third-party-run stores across 30 countries, including its first in Bhutan, a number of franchise locations in China and India, as well as through distributors in Australia, New Zealand, Turkey and other countries. It also opened 16 company-owned Skechers stores, including eight in India, two in Colombia and one each in France, Italy, Peru and Chile, as it closed three locations. Global company-owned and third-party Skechers stores amounted to 4,306 at year end.
To date, in the first quarter, Skechers has opened six stores in the U.S. and one in Italy and intends to open a further 120 to 150 company-owned locations by year-end. As of the end of January, it had closed 11 stores in the U.S. and expects to shutter another five to 10 locations, mainly in mall-based concept stores, by the end of the year.
Skechers also plans to grow online, with new e-commerce sites set to open in more markets this year, including several in Europe for the current quarter, after new e-commerce platforms were launched in the U.K., India, Germany and Austria in the last three months of 2021.
Skechers also released results for the full year, showing sales climbed by 33.7 percent to a record $6,286 million. The gross margin expanded by 1.70 percentage points to 49.3 percent, as higher selling prices in its DTC business more than compensated for higher average costs per unit in both international and domestic wholesale channels. Net earnings were $741.5 million against $98.6 million the year earlier, with diluted EPS growing to $4.73 from $0.64 and adjusted EPS rising to $1.49 to $0.65.
For the first quarter of 2021, sales are anticipated to be in a range of $1,675 million to $1,725 million and EPS of $0.70 to $0.75. The gross margin is expected to decrease slightly compared to the first quarter of 2021 as freight increases offset improved pricing.
In 2022, Skechers expects sales to be in a range of $7 billion to $7.2 billion. The company says it is on track to reach its 2026 top-line target of $10 billion. John Vandermore, CFO, noted that guidance for the year is based on expectations “the pandemic and its aftereffects such as supply chain disruptions, will continue but begin to ease in severity over the course of the year. ”
Skechers also announced it is launching a $500 million three-year share buyback program, a move it says is a sign of confidence in the business’s long-term health and which it expects to finance through free cash flow.