Skechers USA reported an exceptionally strong quarter, with revenues for the three months to Sept. 30 hitting a record high. They jumped by 16.2 percent from the quarter a year ago, to $1,095 million, boosted by strong international growth, especially in China and Europe. In addition, net income rocketed by 41.8 percent to $92.3 million.
All the business segments recorded growth in the quarter, including sales increases of 18.6 percent at company-owned retail stores - with total comparable sales up by 4.4 percent - and of 25.7 percent for the international wholesale business.
In the U.S., wholesale revenues grew by only 1.4 percent, partly due to temporary store closures in Texas, Florida and Puerto Rico due to the recent hurricanes. The quarterly growth was the result of a 2.7 percent increase in pairs shipped and a decrease of 1.3 percent in average price per pair, primarily because of the strength of the kids business, which carries a lower average selling price. Comparable store sales rose by 3.1 percent in the U.S.
Revenues generated outside the U.S. rose by 25.7 percent, with increases of 43.4 percent at the wholesale level and 18.6 percent at the retail level. They made up 53 percent of Skechers' total turnover in the quarter. In recent years, the company has been diversifying away from the U.S. market, and the management still believes this segment represents the greatest growth opportunity, particularly in emerging markets such as those in South America and India, as well as its more established business across Asia.
Double-digit increases in Canada, Brazil and most of Europe and Asia contributed to the company's strong growth outside the U.S. Its wholly-owned foreign subsidiaries raised their sales by 17 percent, with growth in Germany, Spain, the U.K. and Canada reflecting the strength of the European business and the positive impact of price increases in the U.K., evidently intended to compensate for the decline in the value of the pound sterling.
International revenues were also partly boosted by the transition of distributors in Israel and South Korea to a subsidiary or joint venture model. Joint venture sales grew by 51.5 percent, led by double-digit gains in China and India combined with higher revenues from South Korea, which is now Skechers' second-largest joint venture after China.
In China, a market where it is likely to hit the $500 million mark for this year, Skechers grew by nearly 50 percent. The company shipped 4.3 million pairs there in the quarter, while opening 78 free-standing Skechers stores, primarily through franchises. With the closing of 54 units, it ended the third quarter with 736 directly operated stores. At quarter-end, there were 2,339 points of sale in China including franchises.
In India, 18 stores were opened in the quarter, bringing the total store count there to 102. The company recently announced a massive expansion plan in the country that calls for 300 new stores in India over the next three to five years with a focus on tier II and tier III cities. The company is also planning to adopt an omnichannel approach there by integrating its offline stores with its soon-to-be launched e-commerce platform.
Sales to foreign distributors increased by 5.4 percent in the third quarter. The growth came primarily from Indonesia, Turkey, Scandinavia and Ukraine. At the end of the quarter, there were 805 Skechers branded stores owned and operated by international distribution partners, joint ventures and franchisees.
Comparable store sales outside the U.S. went up by 8.4 percent. The number of single-brand stores directly operated by Skechers rose worldwide to 623 locations, including 187 stores outside the U.S. Combined with third-party Skechers stores, there were 2,428 Skechers stores around the world at quarter-end. The company now has a presence in 90 countries outside the U.S.
Adding to the growth was the group's domestic e-commerce business, which rose by 8 percent. The company also has e-commerce sites in operation in Chile, Germany and the U.K. It launched new sites in Spain and Canada during the quarter.
Skechers' gross margin went up by 1.9 percentage points to 47.5 percent in the quarter. However, the operating margin inched down by 0.3 percentage points to 10.6 percent, weighed down by costs associated with the company's new retail stores and marketing expenses intended to support Skechers' global expansion. The management is targeting an operating margin of 12 percent or more from next year, hoping that the current high spending levels will bear fruits.
For the nine months to Sept. 30, revenues were up by 14.0 percent over the year-ago period to $3,190 million. The gross margin gained 0.8 percentage points to 46.5 percent, and net income grew by 3.8 percent to $245.8 million.
Moving forward to the rest of the year, the company expects continued growth through the addition of new product lines and the opening of more Skechers stores. It forecasts a sales increase in the U.S. and continued double-digit sales increases for its international business in the fourth quarter.
Orders in hand indicate that Skechers will exceed the $4 billion mark for the full financial year.