Skechers raised its guidance for earnings in the full year after its direct-to-consumer (DTC) and international operations performed strongly in the second quarter ended June 30. While its domestic wholesale business underperformed as expected, overall revenues rose by a reported 7.7 percent to $2,012.5 million and were 9.1 percent higher at constant currency rates. The top line was about $100 million above the high end of the company’s guidance.
Skechers is now targeting diluted earnings per share (EPS) for the full year of $3.25-$3.40, up from $3.00-$3.20 previously. It has narrowed its sales guidance to $7,950-8,100 million from $7,900-$8,100 million. For the third quarter, Skechers anticipates diluted EPS of $0.70-$0.75 and sales of $1.950-$2,000 million.
“While we continue to see robust consumer demand and strong branded momentum globally, several uncertainties remain, including ongoing headwinds with some wholesale partners in several markets, ambiguity around the pace and shape of the recovery in China, and disconcerting macroeconomic trends,” said John Vandermore, the CFO, in a conference call with analysts.
Skechers’ full-year earnings upgrade comes as the company’s higher-margin DTC business posted impressive growth in the second quarter. Overall, DTC sales jumped by 29.1 percent to reach 47 percent of total sales in the quarter, with 28.7 percent growth domestically and 29.5 percent in foreign markets. DTC volumes increased by 23.8 percent, and average selling prices were 4.4 percent higher. E-commerce was up by a “double digit,” but stores were “really the anchor,” explained Vandermore.
Wholesale sales slipped by 5.9 percent as a 25.0 percent dip domestically more than offset 10.2 percent growth on international markets. Wholesale volumes decreased by 13.1 percent, while average selling prices were up by 8.0 percent.
Vandermore confirmed that the second quarter was expected to be the most difficult for the company’s domestic wholesale business as some wholesalers work through inventory congestion, and the company faced a difficult comparison with the year earlier when domestic wholesale revenues surged by 30 percent. “We’re cautiously optimistic that things are starting to turn for the back half of the year, although again, timing being what it is, we may see some shifts around,” Vandermore added.
Overall international sales rose by 17.9 percent, while domestic sales decreased by 4.6 percent due to the weakness in the wholesale channel. Revenues were up by 20 percent in the APAC region – with 19 percent growth in China and a 27 percent increase in India. Sales in the EMEA region jumped by 16 percent, as the company highlighted 35 percent growth in Spain, 29 percent in Germany and 13 percent in the U.K. Sales in the Americas decreased by one percent.
Q2 earnings margins rise, inventory declines
The company’s second-quarter gross margin expanded by 4.60 percentage points to 52.7 percent, underpinned by the growth of DTC and higher sales prices in wholesale. The gross margin for the wholesale business improved by 3.9 percentage points to 40.2 percent, while that for DTC added 0.5 points to 66.9 percent. The operating margin rose by 2.6 percentage points to 10.8 percent. Net profit and diluted EPS both surged by 69.0 percent, to $152.8 million and $0.98, respectively.
Compared to Dec. 31, 2022, inventory decreased by 18.3 percent to $1.49 billion and is “healthy and well positioned, both to meet consumer demand and continue introducing innovative products in the critical back-to-school and holidays selling periods,” said Vandermore.
Capital expenditures for the quarter totaled $76.2 million, with $29 million tied to the expansion of distribution infrastructure globally, $20.6 million related to investments in retail stores and DTC technologies and $11.4 million for the construction of new corporate offices. Management said that investment priorities are international expansion and strengthening DTC.
In the second quarter, Skechers completed the acquisition of its Scandinavian distributor, a transaction it expects will be “slightly accretive” to earnings this year. The acquisition gave it a total of 56 Skechers stores in Finland, Sweden, Denmark and Norway, alongside two in Germany.
On top of this, Skechers opened 50 company-owned in the quarter while closing 39. A total of 28 stores were opened in China, eight of which transferred from franchise to company-owned; eight big box stores in the U.S. and three stores each in Chile and Vietnam. At the end of the quarter, Skechers had a total of 4,705 stores worldwide, of which 3,161 were third-party stores. Those included 228 third-party stores opened in the second quarter, of which 157 were in China, nine in India and eight in the Philippines.
Skechers said it was developing new product categories, including some that will be introduced later this year, but management was mum when analysts asked to provide further details. “We try to be careful not to get too far ahead or give too much notice where we’re planning something, certainly something big, to get everybody an idea of where to look and where to find it,” said David Weinberg, the chief operating officer.
