Skechers’ revenues in India jumped 24 percent in the third quarter, rebounding from the previous quarter’s decline in the face of changing regulatory requirements, while sales in the Chinese market declined 5.7 percent to $252.4 million as an economic slowdown in that market impacts consumer discretionary spending.
China represents “the most sizable unknown at the moment,” said John Vandemore, the Chief Financial Officer, in a conference call on third-quarter earnings. While Skechers has modest expectations for China in the balance of the year, including for Singles Day, Vandemore said that he thinks that “the macroeconomic environment in China will resolve itself. I think it’s just a question of how quickly and in what manner.” Singles Day is celebrated on Nov. 11.
India “is an incredibly important strategic priority for the company,” added Vandemore, declining to provide a figure for revenues in that market. “There are challenges associated with incorporating a stronger supplier base locally, but it’s something we’re working on diligently. This quarter, I think, is the right example of when we can bring inventory to market in the right way, with the right balance across our product line, it succeeds, and it succeeds widely in that market.”
When speaking at the Wells Fargo Consumer Conference in September, Vandemore noted that a recent quality scheme put in place by the Bureau of Indian Standards, which is aimed at trying to help develop a local production market, has led to some limits on the imports of goods in the country. This has had a negative effect not only on Skechers and the broader footwear and apparel sectors, but also on other industries, he said at the time.
Overall, Skechers’ revenues in the third quarter rose by 15.9 percent to reach $2,347.7 million. Growth was balanced between the company’s domestic and international businesses. Domestic sales rose by 15.3 percent to $916.0 million, reflecting 26.2 percent growth in wholesale sales and a 3.7 percent rise in the direct-to-consumer (DTC) business. International sales rose by 16.4 percent to $1,431.7 million, with 17.5 percent growth in wholesale and a 14.4 percent gain for DTC.
On a regional basis, growth in the top line continued to be underpinned by the Europe, Middle East and Asia (EMEA) region, where sales jumped by 30.2 percent to $625.6 million and were driven by double-digit growth in all countries. Sales in the Americas rose by 13.8 percent to $1,156.1 million, reflecting particularly strong sales in the US and Canada. Sales in the Asia Pacific (APAC) region rose by 7.4 percent to $566.0 million, led by India, Korea and Japan. APAC sales were about 21 percent higher when China is excluded.
Wholesale sales rose by 20.6 percent to $1,416.0 million, including increases in EMEA of 30.9 percent, the Americas of 21.6 percent and APAC of 5.1 percent. Wholesale volume increased by 21.2 percent and average selling price declined by 0.5 percent.
Total direct-to-consumer sales grew by 9.6 percent to $931.7 million, reflecting increases of 28.0 percent in EMEA, 10.0 percent in APAC and 5.0 percent in the Americas. DTC volumes increased by 10.7 percent while average selling prices decreased by 1.0 percent.
The group’s gross margin narrowed by 0.8 percentage point to 52.1 percent due to lower average selling prices. Operating income increased by 9.5 percent to $233.4 million while net earnings grew by 32.9 percent to $193.2 million, with diluted earnings per share (EPS) rising to $1.26 from $0.93.
Skechers ended the third quarter with 5,332 branded stores worldwide, or which 1,743 are company-owned stores, including 592 in the US. It opened 68 company-owned stores in the quarter, including 20 in China, 17 in the US, eight in Mexico, five in Korea and four each in the Netherlands and Vietnam. It closed 27 company-owned stores in the quarter, while also opening 121 third-party stores.
In the fourth quarter to date, Skechers has opened 21 company-owned stores, including seven big box stores in the US and four locations in China. It expects to open a total of 55 to 60 company-owned worldwide in the fourth quarter.
Skechers now anticipates full-year sales of $8.925 to $8.975 billion compared to a previous guidance of $8.875 to $9.75 billion. It has raised its diluted EPS guidance to between $4.20 and $4.25 from prior expectations of $4.08 to $4.18. In the fourth quarter, Skechers forecasts sales between $2.165 and $2.215 billion and diluted EPS between $0.70 and $0.75.
