Skechers USA Inc. (SKX) reported fourth-quarter 2014 results, wherein earnings of 43 cents per share missed the Zacks Consensus Estimate by a penny. Unfavorable currency fluctuations alone impacted the bottom line by 9 cents, leaving investors disappointed. However, what came as a respite was a year-over-year increase of 53.6% in earnings per share.
Total revenue came in at $569.7 million that surpassed the Zacks Consensus Estimate of $538 million and surged 26.4% led by aggressive marketing initiatives, product innovation across multiple categories and healthy performance across all revenue channels. However, the growth rate decelerated from 30.7% registered in the third quarter of 2014.
With increased focus on the new line of products, cost containment, inventory management, a global distribution platform and sturdy backlogs, the company remains confident of sustaining the growth momentum in 2015.
Based on strong backlogs, the company now expects first-quarter 2015 revenue in the range of $690 million to $710 million in the quarter along with earnings per share in the band of 95 cents to $1.05. The Zacks Consensus Estimate stands at 85 cents and is likely to see upward revision soon.
Gross profit for the quarter soared 28.4% to $257.6 million, while gross margin increased 70 basis points (bps) to 45.2%. The growth was primarily driven by increased sales and a favorable product mix.
Operating income for the quarter jumped almost twofold to $33 million, while as a percentage of sales it improved 200 bps to 5.8%.
Segmental Sales Synopsis for Q4
The domestic wholesale business marked revenue increase of 24.3%, reflecting a jump of 15.7% in pairs shipped and an increase of 7.4% in average price per pair.
Skechers’ international business revenue increased 37.9% on the back of a 41.1% rise in international subsidiaries and joint venture (JV) sales, as well as an improvement of 31.3% in distributor sales.
At present, international sales constitute 34.5% of total revenues. Management remains confident that in 3 to 4 year time frame, overseas operations will contribute 50% to total sales.
On a combined basis, retail business sales grew 22%, whereas comparable-store sales advanced 8.6%. Domestic retail sales rose 15.5%, while comparable-store sales increased 6.7%. International retail sales soared 56%, whereas comparable-store sales climbed 19.1%. Domestic E-commerce sales declined 4.5% during the quarter.
Store Update
Skechers had 449 company-owned retail stores and 593 distributor, JV and licensed stores under operation at the end of the fourth quarter. At the quarter-end, the company’s JV and licensed stores comprised 173 outlets under JVs in Asia including stores operated by licensees, 388 distributor-owned or licensed Skechers retail stores globally and 32 company-licensed locations in Brazil, Canada, Spain, France, Portugal and Ireland.
During the fourth quarter, the company opened 19 stores, including 12 domestic stores and 7 international outlets. These comprise of stores in Nevada, Arizona, California, Hawaii, Idaho, New York and Texas, as well as outlets in Canada and Chile. Further, the company closed 1 domestic and 1 international store in the quarter.
So far, in the first quarter of 2015, Skechers has opened 3 company-owned outlets. Going forward, the company plans to open 6–10 retail stores during rest of the quarter and 40-45 for the full year thereby bringing the total store count to 500.
During the fourth quarter, Skechers opened 54 distributor, JV or licensed stores.
So far, in the first quarter, Skechers has opened 6 third-party stores. Going forward, the company plans to open about 145-155 more stores in 2015.
At the end of 2014, Skechers operated 676 branded stores internationally of which 87 are company-owned. Management anticipates reaching 700 international outlets in the first quarter of 2015 by opening stores in new markets like Sweden and Czech Republic. The company expects to open 50 to 60 additional company-owned stores this year and given the planned growth from distributors and licensees, the company projects approximately 1,250 Skechers stores around the globe at the end of 2015.
Strategic Initiatives
Management is focused on product innovation, opening additional Skechers stores and increasing distribution channels with the development of international distribution agreements to boost sales and profitability. Moreover, Skechers’ international business remains a significant sales growth driver for the company. Also, through its distribution networks, subsidiaries and JVs, Skechers is poised to enhance its global reach in the footwear market.
Other Financial Aspects
This Zacks Rank #1 (Strong Buy) stock, which competes with Deckers Outdoor Corp. (DECK) and Nike Inc. (NKE), ended fourth-quarter 2014 with cash and cash equivalents of $466.7 million, long-term debt of $15.1 million and shareholders’ equity of $1,075.2 million, excluding non-controlling interest of $58.9 million.
Capital expenditures for the quarter were approximately $15.5 million. Management now envisions capital expenditures for 2015 to be about $60 million to $70 million
Another Stock to Consider
Another stock worth considering in the shoe space is Sequential Brands Group, Inc. (SQBG), which also sports a Zacks Rank #1.
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