skx-10q_20190930.htm

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 September 30, 2019

☐	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 October 31, 2019, 133,913,825 shares of the registrant’s Class A Common Stock, $0.001 par value per share, were outstanding.

As of October 31, 2019, 22,843,955 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	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signatures	44

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)

	September 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	824,004		$	872,237
Short-term investments		106,747			100,029
Trade accounts receivable, less allowances of $25,737 in 2019 and $25,616 in 2018		662,356			501,913
Other receivables		46,222			55,683
Total receivables		708,578			557,596
Inventories		890,409			863,260
Prepaid expenses and other current assets		97,638			79,018
Total current assets		2,627,376			2,472,140
Property, plant and equipment, net		702,545			585,457
Operating lease right-of-use assets		985,001			—
Deferred tax assets		52,424			39,431
Long-term investments		90,849			93,745
Other assets, net		108,003			37,482
Total non-current assets		1,938,822			756,115
TOTAL ASSETS	$	4,566,198		$	3,228,255
LIABILITIES AND EQUITY
Current liabilities:
Current installments of long-term borrowings	$	66,646		$	1,666
Short-term borrowings		16,270			7,222
Accounts payable		661,428			679,553
Operating lease liabilities		172,947			—
Accrued expenses		189,522			161,781
Total current liabilities		1,106,813			850,222
Long-term borrowings, excluding current installments		39,773			88,119
Long-term operating lease liabilities		976,658			—
Deferred tax liabilities		433			451
Other long-term liabilities		101,068			100,188
Total non-current liabilities		1,117,932			188,758
Total liabilities		2,224,745			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; 130,411 and 129,525 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		130			129
Class B common stock, $0.001 par value; 75,000 shares authorized; 22,904 and 23,983 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		23			24
Additional paid-in capital		293,399			375,017
Accumulated other comprehensive loss		(97,354	)		(31,488	)
Retained earnings		1,978,304			1,691,276
Skechers U.S.A., Inc. equity		2,174,502			2,034,958
Non-controlling interests		166,951			154,317
Total stockholders' equity		2,341,453			2,189,275
TOTAL LIABILITIES AND EQUITY	$	4,566,198		$	3,228,255

See accompanying notes to unaudited condensed consolidated financial statements.

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

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net sales	$	1,353,998		$	1,176,395		$	3,889,319		$	3,561,270
Cost of sales		700,934			612,529			2,035,911			1,853,344
Gross profit		653,064			563,866			1,853,408			1,707,926
Royalty income		6,285			4,860			17,827			15,732
		659,349			568,726			1,871,235			1,723,658
Operating expenses:
Selling		97,516			90,138			281,237			288,606
General and administrative		414,417			354,676			1,165,637			1,080,984
		511,933			444,814			1,446,874			1,369,590
Earnings from operations		147,416			123,912			424,361			354,068
Other income / (expense):
Interest income		3,290			3,008			9,500			6,280
Interest expense		(2,012	)		(1,199	)		(5,194	)		(3,742	)
Other, net		(4,194	)		(2,849	)		(8,628	)		(6,918	)
Total other income / (expense)		(2,916	)		(1,040	)		(4,322	)		(4,380	)
Earnings before income tax expense		144,500			122,872			420,039			349,688
Income tax expense		22,766			16,821			75,288			45,521
Net earnings		121,734			106,051			344,751			304,167
Less: Net earnings attributable to non-controlling interests		18,644			15,323			57,723			50,504
Net earnings attributable to Skechers U.S.A., Inc.	$	103,090		$	90,728		$	287,028		$	253,663
Net earnings per share attributable to Skechers U.S.A., Inc.:
Basic	$	0.67		$	0.58		$	1.87		$	1.62
Diluted	$	0.67		$	0.58		$	1.86		$	1.62
Weighted average shares used in calculating net earnings per share attributable to Skechers U.S.A, Inc.:
Basic		153,298			155,766			153,396			156,238
Diluted		153,978			156,298			154,021			156,981

See accompanying notes to unaudited condensed consolidated financial statements.

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

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net earnings	$	121,734		$	106,051		$	344,751		$	304,167
Other comprehensive income, net of tax:
Loss on foreign currency translation adjustment		(98,416	)		(8,634	)		(92,059	)		(23,509	)
Comprehensive income		23,318			97,417			252,692			280,658
Less: Comprehensive income (loss) attributable to non- controlling interests		(7,700	)		11,487			31,530			42,385
Comprehensive income attributable to Skechers U.S.A., Inc.	$	31,018		$	85,930		$	221,162		$	238,273

See accompanying notes to unaudited condensed consolidated financial statements.

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 June 30, 2019		130,275			23,016		$	130		$	23	$	282,822		$	(25,282	)	$	1,875,214	$	2,132,907		$	190,766		$	2,323,673
Net earnings		—			—			—			—		—			—			103,090		103,090			18,644			121,734
Foreign currency translation adjustment		—			—			—			—		—			(72,072	)		—		(72,072	)		(26,344	)		(98,416	)
Distribution to noncontrolling interest of consolidated entity		—			—			—			—		—			—			—		—			(16,115	)		(16,115	)
Stock compensation expense		—			—			—			—		10,738			—			—		10,738			—			10,738
Shares issued under the Incentive Award Plan		29			—			—			—		—			—			—		—			—			—
Shares redeemed for employee tax withholdings		(5	)		—			—			—		(161	)		—			—		(161	)		—			(161	)
Conversion of Class B Common Stock into Class A Common Stock		112			(112	)		—			—		—			—			—		—			—			—
Balance at September 30, 2019		130,411			22,904		$	130		$	23	$	293,399		$	(97,354	)	$	1,978,304	$	2,174,502		$	166,951		$	2,341,453

Balance at June 30, 2018		132,193			24,163		$	132		$	24	$	443,092		$	(25,334	)	$	1,553,170	$	1,971,084			142,378		$	2,113,462
Net earnings		—			—			—			—		—			—			90,728		90,728			15,323			106,051
Foreign currency translation adjustment		—			—			—			—		—			(4,799	)		—		(4,799	)		(3,835	)		(8,634	)
Distribution to noncontrolling interest of consolidated entity		—			—			—			—		—			—			—		—			(10,998	)		(10,998	)
Stock compensation expense		—			—			—			—		7,621			—			—		7,621			—			7,621
Shares issued under the Incentive Award Plan		23			—			—			—		—			—			—		—			—			—
Shares redeemed for employee tax withholdings		(8	)		—			—			—		(220	)		—			—		(220	)		—			(220	)
Repurchases of common stock		(1,406	)		—			(1	)		—		(40,026	)		—			—		(40,027	)