At Deutsche Bank’s Global Consumer Conference, Skechers told investors that demand, traffic and conversion rates remain healthy. However, the lingering impact of the summer 2022 retail inventory build is still expected to be a headwind for the rest of 2023. The U.S. wholesale market has helped support the bottom line despite recent volatility, providing long-term stability while Skechers focuses on DTC and international growth. Promotional activity in the U.S. resumed in the 2022 pre-Christmas period due to the inventory situation, resulting in a decline in average unit revenue and gross margin but an increase in gross profit. Gross margin will benefit from freight rate normalization in the second half of the year, putting Skechers on track to return to a pre-pandemic operating margin of 9.9 percent, compared to 2022 results in the 7 to 7.5 percent range. Management believes the natural resting point of 11 to 13 percent should be achievable in the next 3 to 5 years.
Europe stabilizes, DTC under Skechers’ control
In Europe, demand continues unabated across all sales channels, Skechers said at Deutsche Bank’s conference. Each of the European markets saw gains last quarter, resulting in overall growth of about 25 percent. There are still inflationary pressures on European consumers, the company said, but supply chain relief is providing some respite, even if demand falls. There is still a lot of potential in the region in terms of distribution channels, especially in the DTC space, where Skechers recently acquired its Scandinavian distributor, bringing almost the entire region under the company’s umbrella.
China on the up
Internationally, China outperformed forecasts with low single-digit growth in the first quarter due to the turbulent lockdown lifts, which provides optimism for the rest of the year, although the big buying days in China in the second half of the year will show the true strength of the recovery and be a better indicator of how 2024 will pan out.
