Skechers once again raised its earnings guidance for the full year after reporting better-than-expected results in the third quarter and despite continued uncertainty about the macroeconomic environment and consumer spending.
Sales in the three months ended Sept. 30 reached a record $2,025.0 million, up by 7.8 percent compared to the year earlier and $25 million above the high end of company guidance. On a constant currency basis, the top line was up by 6.7 percent. Earnings per share surged by 69.1 percent to $0.93, topping the high end of guidance by $0.18.
Skechers now anticipates EPS for the full year of $3.33-$3.43, up from previous guidance of $3.25-$3.40 and $3.00-$3.20 before that. It also forecasts sales of $7,950-$8,050 million, trimming the top end of its previous $7,950-$8,100 million guidance range. In the fourth quarter, the company remains on the cautious side, targeting EPS of $0.40-$0.50 and sales of $1,910-$2,010 million compared to the $0.48 and $1,879 million achieved, respectively, in the fourth quarter of 2022.
Growth in the third quarter continued to be underpinned by the company’s direct-to-consumer (DTC) business. DTC sales grew by 23.8 percent to $850.4 million, driven by increases of 33 percent internationally and 14 percent domestically. DTC sales were up 17.3 percent in the Americas, 24.2 percent in Asia Pacific and 60.8 percent in EMEA. DTC volumes increased by 18.8 percent, and average selling prices were up 4.3 percent.
“We saw continued strong performance in our retail stores globally and meaningful outperformance on our international e-commerce platforms,” said John Vandemore, CFO, in a conference call with analysts. “Consistent with what we are seeing across the industry, we experienced a slowdown in our domestic e-commerce channel as consumers shifted to our stores, which are once again at target inventory levels.”
Third-quarter wholesale sales declined by 1.4 percent to $1.17 billion. Domestic wholesale sales were flat, a performance Vandemore said was “significantly better” than expected due to the accelerated timing of orders. International wholesale sales declined by 2 percent, mainly due to a decline in sales to distributor markets, which suffered from a difficult comparison with the year earlier. Excluding distributor sales, international wholesale sales were up by 5 percent. While wholesale volumes decreased by 10.8 percent, average selling prices increased by 10.3 percent.
Overall, international sales increased by 8.6 percent to represent approximately 61 percent of total sales. Domestic sales rose by 6.5 percent.
The company’s second-quarter gross margin expanded by 5.90 percentage points to 52.9 percent, as average selling prices and the proportion of higher-margin DTC sales increased while freight costs fell. The operating margin widened by 3.60 percentage points to 10.5 percent.
Compared to Dec. 31, 2022, inventory fell by 24.0 percent to $1.38 billion. Vandemore noted that current inventory levels “are healthy and well positioned to support demand during the key holiday selling periods and early 2024.”
In the third quarter, Skechers opened 72 company-owned stores and closed 23. A total of 43 stores were opened in China; five big-box stores in the US; three stores each in Chile and India; two each in France, Israel and Hong Kong; and one each in Canada, Colombia and Peru. At the end of the quarter, Skechers had a total of 4,992 stores worldwide, of which 3,399 were third-party stores. Those included 324 third-party stores opened in the third quarter, including 282 in China and 11 in India.
In the fourth quarter to date, Skechers has opened three company-owned stores in the US and one each in the UK, Colombia and Chile. It expects to open 45-55 company-owned stores worldwide over the remainder of the year. Vandemore said Skechers continues “to have abundant opportunities” to open more stores.
On the product front, Skechers has begun the fourth quarter by introducing an inaugural line of technical basketball shoes, starting with the launch of two mid-top styles. New York Knicks forward Julius Randle and Los Angeles Clippers guard Terance Mann have signed on as Skechers Basketball ambassadors. The launch of the basketball shoe line comes after the debut in the third quarter of Skechers Football, known as soccer in the US, with Bayern München striker and England national football team captain Harry Kane signed up as ambassador.
