Skechers USA Inc. (SKX) posted robust fourth-quarter and fiscal 2013 results as earnings for both periods surpassed the respective Zacks Consensus Estimate and recorded substantial year-over-year growth. Furthermore, the company set records of reporting the second highest sales ever for the fourth quarter as well as the fiscal year. Driven by the stellar results, shares of this footwear retailer shot up 15.1% in the after-market trade hours yesterday.
Fourth-quarter earnings of 28 cents a share compared positively to the Zacks Consensus Estimate of 17 cents and rose over threefold from 8 cents delivered in the prior-year quarter owing to strong top-line growth across all business channels and product categories on both domestic and international fronts. For fiscal 2013, the company’s reported earnings rose over five times to $1.08 per share compared to last year and surpassed the Zacks Consensus Estimate of $1.00.
Increased demand for products, product innovation across multiple categories and healthy performance across all revenue channels led to a 13.9% jump in revenue to $450.7 million in the fourth quarter, while it marginally surpassed the Zacks Consensus Estimate of $447 million. Net sales for the year rose 18.3% year over year to $1,846.4 million and edged past the Zacks Consensus Estimate of $1,843 million.
With more emphasis on the new line of products, cost containment efforts, inventory management, global distribution platform, strong backlogs at the year end (up 30%) and healthy January 2014 sales, the company is confident of sustaining the growth momentum in 2014. Stepping into 2014, the company witnessed mid-single digit comp store sales increase at its domestic and international retail stores.
Q4 Discussions
Gross profit for the quarter soared 19.1% to $200.6 million, while gross margin expanded 190 basis points to 44.5%. This was primarily driven by increased sales and a favorable product mix.
Notably, the company’s effective tax rate dipped substantially to 26.0% compared to 31.9% projected at the end of the third quarter primarily on the back of slightly higher-than-expected international and slightly lower-than-expected domestic profits.
The company anticipates the improved international sales trends to further help tax rate in 2014. Therefore, it projects tax rate to be in the 25% – 30% range.
Segmental Sales Synopsis for Q4
The domestic wholesale business marked an elevation of 16%, reflecting a jump of 19.1% in pairs shipped that benefited from relentless product development initiatives across multiple lines. While the company’s Lifestyle lines gained from sales growth at its women’s and men’s lifestyle product lines, sales at the SKETCHERS Kids division remained weak. Moreover, the company’s Performance Division remained strong with double-digit gain at both women’s and men's Performance lines.
Skechers’ international business increased 5.6% on the back of a 16.3% rise in international subsidiary and joint venture sales. However, distributor sales declined 11.5%. Though tough macroeconomic conditions in several key markets impacted the international distributor business, the company’s partners in Indonesia, Mexico, Turkey, Russia and Australia experienced growth.
Looking ahead, this Zacks Rank #3 (Hold) company expects the momentum witnessed in the fourth quarter in subsidiary and joint ventures to continue in first-quarter 2014 and extend throughout fiscal 2014. On the other hand, the company anticipates flat distributor sales in the first quarter, while it forecasts growth for the full year.
On a combined basis, retail business sales grew 18.6%, whereas comparable-store sales advanced 12.8%. Domestic retail sales rose 16%, while comparable-store sales increased 13.2%. International retail sales soared 34.2%, whereas comparable-store sales climbed 10.8%.
On the domestic front, the company triumphed over the effects of unseasonably cold weather that impacted its retail business in the Midwest and Northeast, and parts of the South. The success is accredited to the company’s diverse product mix, which offered boots and lined footwear for the aforementioned colder regions and Sport assortments to the unusually warm regions in the West and other parts.
The company’s licensing division has been another source of revenue, whereby the company licenses its name and images. Skechers generated $2.9 million in revenue during the quarter from its licensing partners, which includes eyewear, socks and backpacks, as well as footwear.
The 9% rise in sales from the company’s e-Commerce division was one of the highlights of the quarter. Though the company uses it as a marketing tool, the division was successful in driving incremental sales during the quarter.
Stores Update
Skechers had 390 retail stores and 477 distributor, joint venture and licensed stores under operation at the end of fiscal 2013, bringing the total store count to 867. At the end of fiscal 2013, the company’s distributor, joint venture and licensed stores comprised 136 outlets under joint ventures in Asia, including stores operated by licensees, 313 distributor-owned or licensed Skechers retail stores globally, and 28 company-licensed locations in Brazil, Canada, Spain, Portugal and Ireland.
During the fourth quarter, the company opened 20 stores, including 14 domestic and 6 international outlets. These comprise new concept stores in India, Indiana, New Jersey, Massachusetts and Ohio, Canada, Chile, France and the U.K.
So far, in the first quarter of 2014, Skechers has opened 3 outlets, comprising one more new concept store in Chile. This brings the company’s total store count in the country to 25. Going forward, the company plans to open 7 more retail stores through the rest of the first quarter and about 60 – 70 stores in 2014 across the globe.
During the fourth quarter, Skechers opened 34 distributor, joint venture or licensed stores, which included the company’s first stores in New Zealand, Armenia, Hungary, Kazakhstan and Kenya, and 6 stores in Indonesia, 3 each in Philippines and Malaysia, 2 each in India, Mexico, Spain, Singapore, Taiwan and Thailand and 1 each in Australia, Egypt, Jordan, Mauritius and Ireland. Further, the company closed down 3 stores in the fourth quarter, including one each in Croatia, the Netherlands and Honduras.
So far in the first quarter, the company has opened 5 distributor, joint venture and licensed SKECHERS stores. Moreover, the company targets to open another 20 distributor, joint venture and licensed SKECHERS stores in the first quarter and additional 100 – 110 stores through the rest of the year.
Overall, the company targets to expand its store base by another 70 – 80 retail stores and 120 – 130 distributor, joint venture or licensed stores in fiscal 2014, bringing the year-end store count to about 1,070.
Strategic Initiatives
Management remains committed to focus on new lines of products, opening of additional Skechers stores and increasing distribution channels with the development of international distribution agreements to boost its sales and profitability. Moreover, international business remains a significant growth driver for the company’s sales. Skechers, through its distribution networks, subsidiaries and joint ventures, is poised to enhance its global reach in the footwear market.
Other Financial Aspects
Skechers, which competes with Deckers Outdoor Corp. (DECK) and Nike Inc. (NKE), ended fiscal 2013 with cash and cash equivalents of $372.0 million, long-term debt of $116.5 million and shareholders’ equity of $979.9 million, excluding non-controlling interest of $49.6 million. Capital expenditures for the fourth quarter were approximately $11.8 million.
Other Stocks to Consider
Besides Skechers, another stock worth considering in the shoe space includes Francesca's Holdings Corporation (FRAN) sporting a Zacks Rank #2 (Buy).
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