​Skechers Q4 sales jump announced along with full year 2022 financial results

Increased sales for Sketchers

Quarterly sales of the company were about $100 million above analysts’ expectations. Wholesale sales increased by 15.7 percent to $1.049.2 million, driven by an increase of 9.4 percent in unit volume and 6.3 percent in average selling price per unit. Direct-to-consumer (DTC) sales rose by 10.8 percent to $829.6 million, with volumes up by 14.8 percent and the average selling price down by 3.5 percent.

Net income in the quarter fell to $75.5 million from $402.4 million the year earlier, while diluted earnings per share slumped to $0.48 dollars from $2.56. Adjusted earnings per share (EPS) instead increased to $0.48 from $0.43, beating an analyst consensus of $0.38. The gross margin narrowed by 0.40 percentage points to 48.4 percent, mainly due to higher costs per unit and increased promotions in its DTC business, partially offset by higher average selling prices.

U.S. sales increased by 22.3 percent while international grew by 8.7 percent and represented 62 percent of total sales excluding China, which saw a 23 percent decline in the quarter, sales in the Asia Pacific (APAC) region jumped by 31 percent while the EMEA region saw a 29 percent gain and the Americas grew by 22 percent. China suffered from Covid-related restrictions, including the temporary closure of more than 1,000 Skechers stores in November, and helped to drag overall APAC sales down by seven percent.

Sketchers in the APAC Region

Within the APAC region, John Vandemore, the company’s chief financial officer, indicated in a conference call with analysts that the Skechers business in India is worth “a little higher” than $200 million while increasing annual sales in that market to $1 billion “is certainly, depending on what your time frame is, within our sights.” The Skechers brand “is very well recognized and being accepted there. And it’s only a matter of getting everything up and running, and we’re looking to do production also in India,” he said.

Skechers is present in India through wholesalers, company-owned stores and third-party e-commerce but is now introducing its own e-commerce platforms. On the distribution front, Skechers now expects the first 61,300 square meter phase 1 of a 102,200 square meter distribution center near Mumbai to be open by end 2023.

Skechers has also been bolstering distribution center capabilities elsewhere. By the end of the first half of the year, the company expects to be shipping out of a new 40,000 square meter distribution center in Vancouver to improve delivery times for Canada’s market and to have completed the relocation of a new Chilean distribution center, doubling its space to 40,000 square meters. David Weinberg, chief operating officer, said that many shipping challenges Skechers faced with its own distribution centers have eased while the company is seeing improved operations in its recently expanded 242,000 square-meter North American distribution center.

DTC and wholesale

Growth in the DTC business in the fourth quarter was primarily driven by Skechers’ domestic business, which grew by 30 percent due to triple-digit growth in e-commerce and a double-digit increase in brick-and-mortar stores. DTC sales in the entire Americas region jumped by 27.0 percent while EMEA also saw a 19.1 percent increase. But international DTC sales were flat due to declines in China. In January 2023, DTC sales were ahead of last year.

Wholesale sales growth in the fourth quarter was underpinned by an 18.6 percent increase in the Americas and a 31.1 percent rise in EMEA, led by double-digit improvements in Germany, Spain and Central Eastern Europe, as “well as to our distributors, including Turkey, the Middle East, Scandinavia and Greece.” APAC wholesale sales slipped by six percent but were up by 32 percent with the exclusion of China, with high double-digit growth in India and Indonesia and triple-digit growth in Taiwan. Overall, wholesale sales grew by about 16 percent both domestically and internationally.

New e-commerce sites

In the fourth quarter, Skechers launched its first e-commerce site in Japan and said it is pleased with the initial consumer reaction. It plans to launch additional e-commerce sites, including in Peru and Colombia, as well as updating its existing site in Chile.

Skechers also released results for the full year, showing, sales increased by 18.0 percent to $7,444.5 million. The gross margin narrowed by 2.30 percent to 47.2 percent, due mainly to higher freight and logistics costs that were partially compensated by higher selling prices. Net earnings fell to $373.0 million from $741.5 million as diluted EPS declined to $2.38 from $4.73 and adjusted EPS to $2.38 from $2.59.

Expectations for 2023

In the first quarter, Skechers is guiding for sales of $1,800 million to $1,850 million and diluted EPS of $0.55 to $0.60.

After net openings of 40 company-owned stores in the fourth quarter, Skechers expects to open a total of 35 to 40 company-owned stores worldwide in the first quarter and between 100 to 120 over the course of the year. It ended the fourth quarter with a total 4,337 Skechers stores, of which 3,093 were third-party stores, including 157 third-party stores opened during the quarter.

In 2023, Skechers anticipates sales of $7,750 million to $8,000 million and its goal for a top line of $10,000 million in 2026 remains intact. Diluted EPS is estimated at between $2.80 and $3.00 this year. Capital expenditures are projected to total $300 million to $350 million.

The year is beginning with headwinds from both China and the company’s domestic wholesale business, although China’s market is expected to recover steadily throughout the year and the wholesale business in the U.S. is seen gradually overcoming elevated inventory levels and supply chain constraints.

Vandemore noted that risks to the outlook could come from continuing Covid-19 challenges around the globe and an eventual recession. “We don’t see any signs in what we are monitoring and certainly not in our own brand performance that we monitor of a forthcoming macroeconomic recession, but that’s obviously a possibility,” he said.