A sales jump of 52.9 percent in wholesale revenues outside the U.S. contributed to another record turnover for Skechers USA in the third quarter. The company chalked up sales of $856.2 million for the quarter, an increase of 27.0 percent. The international sales hike was achieved despite the impact of negative foreign currency exchange rates in Brazil, Canada and Chile.
David Weinberg, chief operating officer and chief financial officer, said that sales increased by 11.8 percent in the company's U.S. wholesale business and by 20.9 for its own retail operations, including a 10.4 percent increase in comparable sales for the quarter. Skechers managed an increase of 6.8 percent in the average price per pair in its U.S. wholesale business, despite the rather sluggish environment. The last month of the quarter was weaker in the U.S. wholesale market, with fewer reorders than anticipated.
The group's sales increase for the quarter was supported by a commercial with Demi Lovato and a spot for Skechers Sport with Sugar Ray Leonard, among others. The company signed up the pop singer Meghan Trainor as a brand ambassador and inked a multi-year title agreement with the organizers of the Los Angeles Marathon to become its title sponsor, under the Skechers Performance Division.
Skechers continued to invest in retail operations as well. At the end of the quarter it boasted 1,210 owned and franchised Skechers stores, including more than 500 company-owned locations and just over 830 outside the U.S. market. The company said it intended to open another twelve to 17 company-owned stores before the end of the year, on top of five locations opened in October. After twelve store openings through Skechers' international distribution and franchise partners this month, another 45 to 55 similar openings are planned through the remainder of the year, raising the tally to more than 1,280 stores.
The group's gross profit margin was unchanged at 45.2 percent for the quarter and operating income reached $95.6 million, up from $74.1 million. Its net earnings advanced by 30.3 percent to $66.6 million for the quarter. Diluted net earnings per share for the third quarter reached $0.43 on 154.5 million weighted average shares outstanding, up from $0.33 on 153.0 million shares for the same quarter last year. The per share numbers were retroactively adjusted for the three-for-one stock split that was effective on Oct. 15.
Earnings per share were negatively impacted by foreign currency translation and exchange losses of $13.5 million. Another negative factor was a deferred rental bill of $3.5 million related to the new Skechers store on New York's Fifth Avenue, which opened during the quarter, and a second location in Times Square, opened a few days ago, with a selling surface of nearly 230 square meters.
Diluted earnings per share for the quarter were reduced by several legal issues. Skechers faced increased legal expenses of $5.0 million related to the settlement of personal injury lawsuits from Skechers' toning footwear business, and $5.9 million in higher legal fees and associated costs primarily related to intellectual property litigation. This includes a dispute with Converse, which went to trial before the U.S. International Trade Commission in August. Skechers believes that most, if not all, of these legal matters will come to a conclusion by early next year.
The company has been on an expansion drive in the last quarters, with sales surging by 34.1 percent to $2,425 million for the first nine months of the year. Skechers' gross margin crawled up by 0.1 percentage point to 45.1 percent for the nine months. Earnings from operations reached $296.1 million, up by 68.2 percent, while net income soared by 73.2 percent to $202.5 million.
With an increase of 28 percent in orders at the end of September, Skechers' managers predict continued expansion. Sales are projected to expand in Europe, boosted in part by the recent establishment of a subsidiary for Central and Eastern Europe. The management further pointed to a double-digit rise in comparable store sales, market share gains and more efficient distribution centers. At the same time, Skechers said that it could take advantage of its solid financial position, with $510.7 million in cash and cash equivalents, to invest in product, marketing and infrastructure.
