Skechers reported a 127.3 perrcent increase in revenues to a record level of $1.66 billion for the second quarter ended June 30, with a growth of 117.5 percent in local currencies and of 31.7 percent from the second quarter of 2019. Improving its guidance for the full financial year, the management attributed the strong progress to the fact that comfort is apparently here to stay in the post-pandemic world. Defining itself as “The Comfort Techology Company,” it is delivering that message in multi-platform marketing campaigns that feature its air-cooled memory foam, coupled with greater use of recycled materials in its products.
The company also reported net income of $137.4 million for the second quarter, compared with a loss of $68.1 million in the same period of last year. The gross margin improved from 50.5 percent to 51.2 percent, primarily due to improved direct-to-consumer gross margins as a result of higher average selling prices and reduced promotional activity, partially offset by higher growth in the wholesale channel. Sales and general administration costs rose by 51 percent, including higher marketing expenses, but the operationg margin switched to a positive rate of 12.1 percent from a negative 8.4 percent in the year-ago period.
The results exceeded market expectations, sending up the share price by more than 5 percent. The management stressed that they were achieved despite various challenges related to Covid-19, including delayed shipments and port constraints as well as temporary store closures in some key markets like India, Canada and parts of Europe and South America. It is keeping an eye on the Covid-19 situation in Vietnam, but feels that the local factory shutdowns will not pose a problem if they only last two weeks.
Triple-digit improvements were recorded in both domestic and international sales as compared to the second quarter of 2020, when the negative effect of the pandemic had been much stronger. U.S. sales of $399.7 million were 147.3 percent higher than in the second quarter of 2020. In contrast with previous years, when they tended to outperform, international sales rose by 113.7 percent.
Domestic wholesale revenues were up by 205.7 percent from a year ago and by more than 30 percent as compared to the second quarter of 2019, with sport, kids’, casual, and seasonal/sandals as the top-performing categories. Growth of 94.8 percent in international wholesale was led by Europe, with particular strength in the U.K. and Germany. Wholesale revenues rose by 51 percent in China, reflecting a slowdown from its previous perfomance in the country. Mexico and Israel also saw strong growth.
The revenues of Skechers’ foreign subsidiaries jumped by 163 percent, while those of its joint ventures went up by 56 percent. As compared to the second quarter of 2019, only the foreign distributor business experienced a decline.
Direct-to-consumer revenues expanded by 137.8 percent to a total of $507.9 million, despite a 25 percent drop in e-commerce. They were driven by significant improvements at directly operated retail stores, where average selling prices improved by 17 percent from the year-ago level. On a same-store basis, brick-and-mortar sales were up by 95 percent in the U.S. and by 165 percent in the rest of the world. Outside the U.S., overall DTC revenues were 259 percent higher than a year ago and 20 percent higher than in the second quarter of 2019.
At the end of the latest quarter, Skechers had 512 directly operated stores in the U.S. - 11 fewer than at the beginning of this year - and 339 abroad. Adding joint venture, licensed, franchised and distributors’ stores, there were 4,027 Skechers locations in operation as of June 30, 166 more than on Dec. 31. Some 25-30 owned stores and 145-155 third-party shops are planned for new openings in the second half of this year.
The management pointed out that India has been hit particularly hard by Covid, and that store closures and reduced operating hours are still lingering at this stage in other markets such as Canada, Japan and many countries in Latin America. Nevertheles, for the full financial year, the company is now forecasting a net profit of around $400 million on total sales of between $6.15 billion and $6.25 billion, including third-quarter revenues of $1.60 billion to $1.65 billion. It had previously guided for an annual turnover of between $5.80 and $5.90 billion.
The company has budgeted capital expenditures of $150-200 million for this year. Part of them will be used for improved logistics. New distribution centers are in progress in the U.K., Japan and Peru. Skechers’ 1.5 million-sqft facility for the Chinese market is now fully operational. Its facility in California is due to be expanded to 2.6 million sqft. in 2022.
