Skechers USA, a global footwear leader, has announced financial results for the third quarter ended September 30, 2018.
“Achieving record third quarter sales is a notable accomplishment given the strength of our third quarter 2017 sales,” began Robert Greenberg, Chief Executive Officer, Skechers.
Greenberg added, “Both our domestic and international businesses grew, and we remained the leader in walking, work, casual lifestyle and sandals footwear in the United States. We experienced strong product successes across multiple divisions around the world, which was evident by our double-digit growth in both our international wholesale and worldwide Company-owned retail businesses. Skechers D’Lites, our heritage chunky style that has seen great success over the last two years in Asia, is now an in demand style across North America and Europe, and is poised for growth in South America, India and the Middle East. Through Skechers D’Lites, we are reaching a younger, more fashion-savvy audience, and getting press—from Marie Claire and Elle to HypeBae and Highsnobiety—and social media influencers are embracing this signature look. Further, we are seeing renewed acceptance of this chunky style by men. Our core footwear categories for men, women, work and golf are also performing well. We are achieving this growth with the right product mix combined with a balanced approach to marketing spend. As we continue to invest in our international infrastructure, we believe there is significant opportunity to grow our brand further through both wholesale, and Company-owned and third-party retail stores, which now stand at 2,802 locations worldwide. We’re looking forward to fourth quarter growth across both our domestic and international channels and a new annual sales record.”
“As we near the close of 2018, we believe the direction of our business is on target with our record sales in the third quarter, continued international growth and strong gross margins,” stated David Weinberg, Chief Operating Officer of Skechers.
Weinberg added, “With three record sales quarters in 2018 and brand acceptance around the globe, we achieved a new record for the first nine months of US$ 3.56 billion, an 11.5 percent increase over last year. In the third quarter, our international distributor business returned to growth, increasing 11.6 percent over the same period last year, and combined with our international joint venture and subsidiary business, our total international wholesale sales increased 11.8 percent for the period. International wholesale along with international retail now represents 55.5 percent of our total business. We expect our business in the United States—both wholesale and retail—to grow in the fourth quarter. We remain committed to efficiently and profitably growing our global footwear business.”
Sales grew 7.5 percent as a result of an 11.8 percent increase in the Company’s international wholesale business, and a 10.6 percent increase in its Company-owned global retail business. Its domestic wholesale business decreased 3.0 percent. The Company’s total international business grew 12.5 percent and its total domestic business grew 1.8 percent. Third quarter comparable same store sales in Company-owned retail stores worldwide increased 1.9 percent, including an increase of 3.0 percent in the United States offset by a decrease of 0.8 percent in its international stores.
Gross margins slightly increased as higher domestic margins from improved retail pricing and product mix were partially offset by the impact of negative foreign currency exchange rates.
SG&A expenses increased 9.5 percent in the quarter. Selling expenses increased by 0.7 percent, but improved 50 basis points as a percentage of sales from 8.2 percent to 7.7 percent for the third quarter 2018. The US$ 37.8 million increase in general and administrative expenses was primarily the result of the Company’s continued commitment to build its international brand presence and direct-to-consumer channels. General and administrative expenses in China grew US$ 7.5 million to support continued expansion, including preparation for next month’s Single’s Day, and US$ 13.3 million associated with operating 58 additional company-owned Skechers stores worldwide, of which 13 opened in the third quarter. General and administrative expenses also included US$ 11.1 million related to corporate and domestic operations, of which US$ 4.8 million was for increased domestic warehouse and distribution costs.
Earnings from operations increased US$ 7.4 million, or 6.4 percent.
Net earnings were US$ 90.7 million and diluted earnings per share were US$ 0.58. In the third quarter, the company’s income tax rate was 13.7 percent reflecting its continued assessment of the impact of the recently enacted tax reform legislation. As a comparison, the company’s income tax rate for the three months ended September 30, 2017 was 9.4 percent.
Sales grew 11.5 percent as a result of an 18.9 percent increase in the company’s international wholesale business, and a 13.7 percent increase in its company-owned global retail business. For the nine-month period, its domestic wholesale business was essentially flat compared to the same prior year period. The company’s combined international wholesale and retail business grew 19.7 percent and its combined domestic wholesale and retail business increased by 3.4 percent.
Gross margins increased due to strength in the Company’s international wholesale and Company-owned international retail businesses.
SG&A expenses increased 17.3 percent. This increase was due to an additional US$ 176.3 million in general and administrative expenses. Selling expenses increased by US$ 25.3 million.
Earnings from operations increased US$ 26.9 million, or 8.2 percent.
Net earnings were $253.7 million and diluted earnings per share were US$ 1.62. For the nine months, the company’s income tax rate was 13.0 percent. As a comparison, the company’s income tax rate for the nine months ending September 30, 2017 was 12.9 percent.
For the fourth quarter of 2018, the company believes it will achieve sales in the range of US$ 1.100 billion to US$ 1.125 billion, and diluted earnings per share of US$ 0.20 to US$ 0.25. The guidance is based on expected growth in each of the company’s three segments. The company now expects its effective tax rate to be between 13 and 15 percent, which implies a fourth quarter tax rate of between 17 and 20 percent.
