Skechers' share price jumped by 5.7 percent in after-hours trading on Thursday after the company posted revenues and comparable-store sales for the fourth quarter of 2016 that topped analysts' forecasts. Sales rose by 5.8 percent in the quarter to $764.3 million, while analysts had predicted a turnover of $723.7 million. Comparable sales at the company's own stores went up by 3.6 percent.
However, Skechers' net income fell by 77 percent to $6.7 million, well below expectations. The company said this was partly due to challenging comparisons with the very strong increases that the company had booked in the fourth quarter of 2015 in its international and retail businesses.
Skechers' management said the company's international wholesale business was the main source of growth in the latest quarter, with revenues rising by 17.1 percent, led by an increase of 48.5 percent in China. However, the negative currency translation impact reached $18.4 million during the quarter. In addition, these sales increases were offset by a decrease of 11.8 percent in the company's domestic wholesale business, nearly half of which was attributed to Skechers' launch of its Star Wars footwear collection in the fourth quarter of 2015.
Sales outside the U.S. accounted for 46.1 percent of the company's 2016 revenues, and the management confirmed plans to raise the ratio to 50 percent in the near future. It has already transitioned several foreign distributors to joint ventures or subsidiaries in key regions, while investing in infrastructures and marketing to support the current and planned growth, especially in China.
The transition of some Latin American and Central Eastern European distributors to subsidiaries in 2015 and of its Israeli and South Korean distributors to joint ventures in the second half of 2016 caused the company to record a drop of 13.6 percent in its distributor business during the latest quarter.
Seven of its subsidiaries showed increases in the quarter, with the highest gains coming from France, Brazil, and Chile. Skechers' joint ventures grew by 61.9 percent, led by a 48.5 percent gain in China and high double-digit gains in Hong Kong, India, and Malaysia. China shipped nearly three million pairs in the quarter.
Skechers' own retail business grew worldwide by 13.9 percent on a store base that reached a level of 571 doors at year-end. Combined with sales at third-party Skechers stores, the store count reached 2,012 doors worldwide, including more than 500 locations in China, more than 60 each in India, Mexico and Saudi Arabia, and over 50 each in Australia, Malaysia, South Korea and Taiwan.
The gross margin rose by 1.0 percentage point to 46.6 percent in the quarter, backed by higher revenues and margins at international subsidiaries and reduced wholesale revenues and margins in the U.S., which were offset by lower retail margins. Operating expenses increased in connection with the addition of new stores and stronger advertising outside the U.S..
For all of 2016, Skechers' sales were up by 13.4 percent to $3.56 billion and the gross margin gained 0.7 percentage points to 45.9 percent. Net income went up by 5.0 percent to $243.5 million, although the operating margin decreased by 0.7 percentage points to 10.4 percent.
David Weinberg, the company's executive vice president and chief financial and operating officer, claimed in a conference call that Skechers remained the N° 2 sports footwear brand in the U.S. in 2016 (in spite of Adidas' strong progress in the country). It also remained the N° 1 brand of walking shoes, work shoes and dress/comfort casual footwear, Weinberg stressed. He added that the brand would aggressively revamp its product lines to include more youthful, relevant and innovative styles.
Driving sales in the latest quarter was a mix of men's and women's athletic lifestyle footwear, especially the Walk collection and heritage Skechers D'Lites range. New collections in 2017 will include lighted footwear, a new line from the Skechers Performance Division and a new product line designed for the millennials.
Skechers said it ended 2016 with record incoming orders for its domestic wholesale business as well at its foreign subsidiaries and its distributor business. It expects revenues in the range of $1.050 billion to $1.075 billion for the first quarter of 2017, with flat to slightly positive sales in its domestic wholesale business and increases in its international operations and at company-owned retail stores
