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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-14429

SKECHERS U.S.A., INC.

(Exact name of registrant as specified in its charter)

 

 Delaware

 

95-4376145

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

228 Manhattan Beach Blvd.

Manhattan Beach, California

 

90266

(Address of Principal Executive Office)

 

(Zip Code)

(310) 318-3100

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol

 

Name of each exchange on which registered

Class A Common Stock, par value $0.001 per share

 

SKX

 

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of July 31, 2019, 133,750,580 shares of the registrant’s Class A Common Stock, $0.001 par value per share, were outstanding.

As of July 31, 2019, 23,015,771 shares of the registrant’s Class B Common Stock, $0.001 par value per share, were outstanding.

 

 

 

 


SKECHERS U.S.A., INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited):

 

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Earnings

4

 

Condensed Consolidated Statements of Comprehensive Income

5

 

Condensed Consolidated Statements of Equity

6

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Condensed Consolidated Financial Statements

9

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

Item 4.

Controls and Procedures

36

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

37

 

Item 1A.

Risk Factors

39

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

 

Item 3.

Defaults Upon Senior Securities

41

 

Item 4.

Mine Safety Disclosures

41

 

Item 5.

Other Information

41

Item 6.

Exhibits

42

 

Signatures

43

 

 

 

 

2


 

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par values)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

779,281

 

 

$

872,237

 

Short-term investments

 

 

104,271

 

 

 

100,029

 

Trade accounts receivable, less allowances of $25,253 in 2019 and $25,616 in 2018

 

 

641,431

 

 

 

501,913

 

Other receivables

 

 

44,768

 

 

 

55,683

 

Total receivables

 

 

686,199

 

 

 

557,596

 

Inventories

 

 

855,627

 

 

 

863,260

 

Prepaid expenses and other current assets

 

 

67,165

 

 

 

79,018

 

Total current assets

 

 

2,492,543

 

 

 

2,472,140

 

Property, plant and equipment, net

 

 

683,254

 

 

 

585,457

 

Operating lease right-of-use assets

 

 

996,774

 

 

 

 

Deferred tax assets

 

 

52,510

 

 

 

39,431

 

Long-term investments

 

 

89,486

 

 

 

93,745

 

Other assets, net

 

 

106,669

 

 

 

37,482

 

Total non-current assets

 

 

1,928,693

 

 

 

756,115

 

TOTAL ASSETS

 

$

4,421,236

 

 

$

3,228,255

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current installments of long-term borrowings

 

$

3,986

 

 

$

1,666

 

Short-term borrowings

 

 

9,998

 

 

 

7,222

 

Accounts payable

 

 

640,170

 

 

 

679,553

 

Operating lease liabilities

 

 

170,899

 

 

 

 

Accrued expenses

 

 

169,520

 

 

 

161,781

 

Total current liabilities

 

 

994,573

 

 

 

850,222

 

Long-term borrowings, excluding current installments

 

 

100,024

 

 

 

88,119

 

Long-term operating lease liabilities

 

 

904,205

 

 

 

 

Deferred tax liabilities

 

 

442

 

 

 

451

 

Other long-term liabilities

 

 

98,319

 

 

 

100,188

 

Total non-current liabilities

 

 

1,102,990

 

 

 

188,758

 

Total liabilities

 

 

2,097,563

 

 

 

1,038,980

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding

 

 

 

 

 

 

Class A common stock, $0.001 par value; 500,000 shares authorized;

   130,275 and 129,525 shares issued and outstanding at June 30, 2019

   and December 31, 2018, respectively

 

 

130

 

 

 

129

 

Class B common stock, $0.001 par value; 75,000 shares authorized;

   23,016 and 23,983 shares issued and outstanding at June 30, 2019

   and December 31, 2018, respectively

 

 

23

 

 

 

24

 

Additional paid-in capital

 

 

282,822

 

 

 

375,017

 

Accumulated other comprehensive loss

 

 

(25,282

)

 

 

(31,488

)

Retained earnings

 

 

1,875,214

 

 

 

1,691,276

 

Skechers U.S.A., Inc. equity

 

 

2,132,907

 

 

 

2,034,958

 

Non-controlling interests

 

 

190,766

 

 

 

154,317

 

Total stockholders' equity

 

 

2,323,673

 

 

 

2,189,275

 

TOTAL LIABILITIES AND EQUITY

 

$

4,421,236

 

 

$

3,228,255

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3


 

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

$

1,258,565

 

 

$

1,134,797

 

 

$

2,535,321

 

 

$

2,384,875

 

Cost of sales

 

 

648,730

 

 

 

573,840

 

 

 

1,334,977

 

 

 

1,240,815

 

Gross profit

 

 

609,835

 

 

 

560,957

 

 

 

1,200,344

 

 

 

1,144,060

 

Royalty income

 

 

6,341

 

 

 

5,350

 

 

 

11,542

 

 

 

10,872

 

 

 

 

616,176

 

 

 

566,307

 

 

 

1,211,886

 

 

 

1,154,932

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

 

113,507

 

 

 

114,022

 

 

 

183,721

 

 

 

198,468

 

General and administrative

 

 

391,588

 

 

 

370,927

 

 

 

751,220

 

 

 

726,308

 

 

 

 

505,095

 

 

 

484,949

 

 

 

934,941

 

 

 

924,776

 

Earnings from operations

 

 

111,081

 

 

 

81,358

 

 

 

276,945

 

 

 

230,156

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

3,067

 

 

 

2,518

 

 

 

6,209

 

 

 

3,273

 

Interest expense

 

 

(1,905

)

 

 

(1,464

)

 

 

(3,182

)

 

 

(2,542

)

Other, net

 

 

553

 

 

 

(7,473

)

 

 

(4,433

)

 

 

(4,070

)

Total other income (expense)

 

 

1,715

 

 

 

(6,419

)

 

 

(1,406

)

 

 

(3,339

)

Earnings before income tax expense

 

 

112,796

 

 

 

74,939

 

 

 

275,539

 

 

 

226,817

 

Income tax expense

 

 

20,798

 

 

 

14,080

 

 

 

52,522

 

 

 

28,700

 

Net earnings

 

 

91,998

 

 

 

60,859

 

 

 

223,017

 

 

 

198,117

 

Less: Net earnings attributable to non-controlling interests

 

 

16,818

 

 

 

15,575

 

 

 

39,079

 

 

 

35,181

 

Net earnings attributable to Skechers U.S.A., Inc.

 

$

75,180

 

 

$

45,284

 

 

$

183,938

 

 

$

162,936

 

Net earnings per share attributable to Skechers U.S.A., Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.49

 

 

$

0.29

 

 

$

1.20

 

 

$

1.04

 

Diluted

 

$

0.49

 

 

$

0.29

 

 

$

1.19

 

 

$

1.04

 

Weighted average shares used in calculating net earnings per

   share attributable to Skechers U.S.A, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

153,413

 

 

 

156,518

 

 

 

153,446

 

 

 

156,476

 

Diluted

 

 

153,912

 

 

 

157,091

 

 

 

154,051

 

 

 

157,366

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4


 

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net earnings

 

$

91,998

 

 

$

60,859

 

 

$

223,017

 

 

$

198,117

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on foreign currency translation adjustment

 

 

2,905

 

 

 

(20,209

)

 

 

6,357

 

 

 

(14,875

)

Comprehensive income

 

 

94,903

 

 

 

40,650

 

 

 

229,374

 

 

 

183,242

 

Less: Comprehensive income attributable to non-controlling

   interests

 

 

15,483

 

 

 

8,452

 

 

 

39,230

 

 

 

30,897

 

Comprehensive income attributable to Skechers U.S.A., Inc.

 

$

79,420

 

 

$

32,198

 

 

$

190,144

 

 

$

152,345

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


 

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

 

 

 

SHARES

 

 

AMOUNT

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLASS A

 

 

CLASS B

 

 

CLASS A

 

 

CLASS B

 

 

ADDITIONAL

 

 

OTHER

 

 

 

 

 

 

SKECHERS

 

 

NON

 

 

TOTAL

 

 

 

COMMON

 

 

COMMON

 

 

COMMON

 

 

COMMON

 

 

PAID-IN

 

 

COMPREHENSIVE

 

 

RETAINED

 

 

U.S.A., INC.

 

 

CONTROLLING

 

 

STOCKHOLDERS'

 

 

 

STOCK

 

 

STOCK

 

 

STOCK

 

 

STOCK

 

 

CAPITAL

 

 

INCOME (LOSS)

 

 

EARNINGS

 

 

EQUITY

 

 

INTERESTS

 

 

EQUITY

 

Balance at March 31, 2019

 

 

130,242

 

 

 

23,016

 

 

 

130

 

 

 

23

 

 

 

291,867

 

 

 

(29,522

)

 

 

1,800,034

 

 

 

2,062,532

 

 

 

172,986

 

 

 

2,235,518

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,180

 

 

 

75,180

 

 

 

16,818

 

 

 

91,998

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,240

 

 

 

 

 

 

4,240

 

 

 

(1,335

)

 

 

2,905

 

Contribution from noncontrolling interest of consolidated

   entity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,776

 

 

 

22,776

 

Distribution to noncontrolling interest of consolidated

   entity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,479

)

 

 

(20,479

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,555

 

 

 

 

 

 

 

 

 

10,555

 

 

 

 

 

 

10,555

 

Proceeds from issuance of common stock under the

   employee stock purchase plan

 

 

134

 

 

 

 

 

 

 

 

 

 

 

 

3,177

 

 

 

 

 

 

 

 

 

3,177

 

 

 

 

 

 

3,177

 

Shares issued under the Incentive Award Plan

 

 

658

 

 

 

 

 

 

1

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares redeemed for employee tax withholdings

 

 

(248

)

 

 

 

 

 

 

 

 

 

 

 

(7,767

)

 

 

 

 

 

 

 

 

(7,767

)

 

 

 

 

 

(7,767

)

Repurchases of common stock

 

 

(511

)

 

 

 

 

 

(1

)

 

 

 

 

 

(15,009

)

 

 

 

 

 

 

 

 

(15,010

)

 

 

 

 

 

(15,010

)

Balance at June 30, 2019

 

 

130,275

 

 

 

23,016

 

 

$

130

 

 

$

23

 

 

$

282,822

 

 

$

(25,282

)

 

$

1,875,214

 

 

$

2,132,907

 

 

$

190,766

 

 

$

2,323,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

 

 

132,415

 

 

 

24,163

 

 

$

132

 

 

$

24

 

 

$

450,377

 

 

$

(12,250

)

 

$

1,507,887

 

 

$

1,946,170

 

 

$

137,155

 

 

$

2,083,325

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45,284

 

 

 

45,284

 

 

 

15,575

 

 

 

60,859

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,085

)

 

 

 

 

 

(13,085

)

 

 

(7,124

)

 

 

(20,209

)

Distribution to noncontrolling interest of consolidated

   entity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,228

)

 

 

(3,228

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,289

 

 

 

 

 

 

 

 

 

7,289

 

 

 

 

 

 

7,289

 

Proceeds from issuance of common stock under the

   employee stock purchase plan

 

 

116

 

 

 

 

 

 

 

 

 

 

 

 

2,889