Skechers USA went through a very strong first quarter where its sales jumped by 40.5 percent to $768 million, growing in all the categories. The sales increase came in spite of numerous adverse factors such as the West Coast strikes and unseasonably cold weather in the U.S., the strong dollar and the slower-than-expected upgrading of the company's European distribution center.
The gross margin declined to 43.3 percent from 44.0 percent of sales in the year-ago period because of the currency effect, which may lead Skechers to revise its pricing. However, the operating margin improved to 11.5 percent from 8.8 percent because the high sales leverage on operating costs. The company ended up with an increase of 81.0 percent in net income to $56.1 million, beating analysts' projections.
In the U.S., Skechers' wholesale revenues increased by 38.2 percent, rising by 30.5 percent in volume and by 5.9 percent in terms of average prices. The highest growth rates were recorded in women's sports active and other performance-oriented lines. Children's shoes started growing again thanks to new offerings of lightweight sports shoes and other items including a Game Kicks line with an in-built memory game.
The company's foreign subsidiaries lifted their revenues by 42 percent in terms of dollars. Those in Europe raised them by 58.1 percent, with the U.K. and Germany leading the growth. European sales would have grown more without a bottleneck at the company's European distribution center, whose size will be doubled by the first quarter of 2016, adding automation equipment.
Triple-digit increases in Singapore, India and China helped to boost the sales of Skechers' joint ventures in Asia by 136.9 percent. Sales to foreign distributors advanced by 62.7 percent, led by triple-digit gains in Scandinavia, Turkey and the United Arab Emirates.
The company's own retail stores booked increases of 18.1 percent in the U.S. and 28.5 percent abroad, rising on a comparable store basis by 8.3 percent and 14.8 percent, respectively. E-commerce grew by only 7.9 percent in the U.S., where it represents less than one percent of total sales. No major investments are planned in e-commerce, which is regarded by Skechers mostly as a branding tool.
With 39 new openings during the period, there were 1,063 single-brand Skechers stores operating around the world on May 31 – 610 outside the U.S. – and the management is forecasting a door count of 1,250 by the end of this year.
Company officials attribute the brand's continued momentum to good products offered at affordable prices, which are particularly attractive in difficult times and in emerging markets, backed by strong marketing efforts in the U.S. and the rest of the world. Skechers announced a few days ago a new marketing deal with a famous American boxing champion, Sugar Ray Leonard, to support a new campaign for its Relaxed Fit collection due to start in the autumn.
Strong growth is expected to continue for the balance of the year. Based on the current order backlog, it should even accelerate in the third quarter in terms of local currencies.
John Horan, our partner in the U.S. for the American edition of Sporting Goods Intelligence, declared Skechers “Vendor of the Year” in his electronic magazine SGI Weekly Intelligence.