Skechers Announces First Quarter 2020 Financial Results

Apr 23, 2020 • 4:05 pm EDT

MANHATTAN BEACH, Calif.--(BUSINESS WIRE)-- SKECHERS USA, Inc. (NYSE:SKX), a global footwear leader, today announced financial results for the first quarter ended March 31, 2020.

First Quarter Results

  • Sales of $1.24 billion, a 2.7 percent decrease
  • Constant currency sales were $1.26 billion, a 1.2 percent decrease
  • Domestic wholesale sales increased 9.0 percent
  • International wholly-owned subsidiary sales increased 9.4 percent
  • Diluted earnings per share were $0.32, a decrease of 54.9 percent
  • Adjusted earnings per share were $0.39, a decrease of 45.1 percent
  • Cash, cash equivalents and investments were $1.37 billion at quarter end

“We are in unprecedented times, facing difficult decisions daily as we navigate this global pandemic that has negatively impacted every business throughout our industry, and most others,” stated Robert Greenberg, chief executive officer of Skechers. “Our priority is the health and welfare of our global team, and we’re taking swift and decisive actions that will ensure Skechers remains a go-to brand as we also prepare for the reopening of markets around the world. We know from the triple-digit growth we are experiencing so far in this month in our ecommerce business and the positive sales trajectory of our recovering business in China, that Skechers’ product continues to resonate with consumers. As our business begins to return to normal, we firmly believe that our retail partners and customers will look to a brand they trust that delivers comfort, innovation, style, and quality at a value.”

“We experienced strong momentum throughout 2019, which continued into the first two months of 2020,” began David Weinberg, chief operating officer of Skechers. “However, due to significantly reduced economic activity in China after January, and the spread of the COVID-19 pandemic around the rest of the world in March, sales decreased 2.7 percent in the first quarter. Until then, Skechers business was on track for a new first quarter sales record. We achieved the highest shipments ever from our North American and European distribution centers in January and February, and our worldwide comparable same store sales increased 9.8 percent in our company-owned direct-to-consumer business for the first two months of the quarter. We believe that our quarterly performance prior to the disruption is a testament to the strength of our product and brand, all of which leads us to believe that when markets reopen, people return to work and customers get back to shopping, Skechers will continue in its position as a leading footwear brand.”

First Quarter 2020 Financial Results
(Dollars in millions, except per share data)

 

 

Three months ended

 

 

 

 

March 31,

 

 

 

 

2020

 

 

2019

 

 

Sales

 

$

1,242.3

 

 

$

1,276.8

 

 

Gross Profit

 

 

547.7

 

 

 

590.5

 

 

Gross Margin

 

 

44.1

 

%

 

46.2

 

%

SG&A Expenses

 

 

508.1

 

 

 

429.8

 

 

As a % of Sales

 

 

40.9

 

%

 

33.7

 

%

Earnings from Operations

 

 

44.8

 

 

 

165.9

 

 

Operating Margin

 

 

3.6

 

%

 

13.0

 

%

Net Earnings

 

 

49.1

 

 

 

108.8

 

 

Diluted Earnings per Share

 

$

0.32

 

 

$

0.71

 

 

 

 

 

 

 

 

 

 

 

 

Sales decreased 2.7 percent as a result of a 6.8 percent decrease in its international business which was partially offset by a 2.9 percent increase in the Company’s domestic business. On a constant currency basis, the Company’s total sales decreased 1.2 percent. The Company’s domestic wholesale business increased 9.0 percent, its Company-owned direct-to-consumer business decreased 4.2 percent, and the Company’s international wholesale business decreased 8.4 percent. The Company’s international wholesale business was adversely impacted by results in China, which was down 47 percent in the quarter and impacted by a significant return reserve to keep franchisee inventory levels clean with seasonally appropriate merchandise. Comparable same store sales in Company-owned direct-to-consumer business decreased 8.1 percent, including a decrease of 4.7 percent in the United States and 16.6 percent internationally, reflecting the closure of the majority of its Company-owned stores since mid-March.

Gross margins decreased by approximately 220 basis points as a result of lower international gross margins. There was also a negative impact to gross profit in the quarter related to the acquisition of the Company’s interest in the Mexico joint venture in 2019. During the first quarter, the Company recorded a one-time, non-cash purchase price adjustment of approximately $8.0 million.

SG&A expenses increased $78.3 million, or 18.2 percent in the quarter. Selling expenses increased by $3.8 million, or 5.5 percent, primarily due to higher digital advertising expenses domestically. General and administrative expenses increased by $74.4 million, or 20.7 percent. The increase included $28.1 million associated with its direct-to-consumer business, due to a net increase of 54 new Company-owned Skechers stores, including 16 that opened in the first quarter; $16.2 million related to the inclusion of Mexico operations, including non-cash charges of approximately $7.8 million related to the acquisition of our interest in the joint venture; $7.3 million in China primarily related to the absence of a rebate comparable to prior year; and $9.0 million related to higher compensation and outside services costs.

Earnings from operations decreased $121.1 million, or 73.0 percent, to $44.8 million.

Net earnings were $49.1 million and diluted earnings per share were $0.32. Adjusted net earnings and adjusted diluted earnings per share were $59.9 million and $0.39, respectively, and reflect the impact of negative foreign currency rates and certain purchase price adjustments related to the Company’s acquisition in its Mexico joint venture.

In the first quarter, the Company’s effective income tax rate was 15.3 percent.

Balance Sheet

At quarter-end, cash, cash equivalents and investments totaled $1.37 billion, an increase of $335.3 million, or 32.5 percent from December 31, 2019, and an increase of $487.0 million, or 55.4 percent, over March 31, 2019. The increase reflects the drawdown of the Company’s senior unsecured facility in March.

Total inventory, including inventory in transit, was $985.7 million, a decrease of $84.2 million from December 31, 2019, but an increase of $244.8 million or 33.0 percent over March 31, 2019. The increase reflects the unexpected cessation of wholesale shipping and retail activity at the end of the quarter.

Working capital was $2.187 billion, a $606.1 million increase over December 31, 2019, and a $624.8 million increase over March 31, 2019. This was due to the Company’s drawdown on its senior unsecured credit facility and increased inventory levels globally, partially offset by lower accounts payable balances.

“Despite an extremely strong end to 2019 and equally strong beginning to 2020, we did see a meaningful slowdown in markets impacted by the COVID-19 pandemic,” said John Vandemore, chief financial officer of Skechers. “We have taken decisive action to fortify our business for the duration of this crisis, including drawing down on our senior unsecured credit facility, actively managing operating expenses, inventory levels and production orders, and deferring non-critical capital expenditures. We are confident that the actions we have taken and will continue to take, combined with the global strength of our brand and balance sheet, will position Skechers to successfully navigate this situation, and poise us to return to growth in the future.”

Outlook

The Company is not providing any further financial guidance at this time given the ongoing business disruption and substantial uncertainty surrounding the impact of the COVID-19 pandemic on its business globally.

Store Count

 

 

Number of Store
Locations as of

 

 

 

 

 

 

 

 

 

 

Number of Store
Locations as of

 

 

 

December 31, 2019

 

 

Opened

 

 

Closed(1)

 

 

March 31, 2020

 

Company-owned domestic stores

 

 

497

 

 

 

14

 

 

 

(3

)

 

 

508

 

Company-owned international stores

 

 

303

 

 

 

2

 

 

 

(1

)

 

 

304

 

Joint-venture stores

 

 

354

 

 

 

25

 

 

 

(2

)

 

 

377

 

Distributor, licensee and franchise stores

 

 

2,393

 

 

 

51

 

 

 

(58

)

 

 

2,386

 

Total Skechers stores

 

 

3,547

 

 

 

92

 

 

 

(64

)

 

 

3,575

 

(1) Does not reflect temporary closures due to the COVID-19 pandemic.

First Quarter 2020 Conference Call

The Company will host a conference call today at 1:30 p.m. Pacific Time / 4:30 p.m. Eastern Time to discuss its first quarter 2020 financial results. The call can be accessed on the Investor Relations section of the Company’s website at investors.skechers.com. For those unable to participate during the live broadcast, a replay will be available beginning April 23, 2020 at 7:30 p.m. ET, through May 7, 2020, at 11:59 p.m. ET. To access the replay, dial 844-512-2921 (U.S.) or 412-317-6671 (International) and use passcode: 13701352.

About SKECHERS USA, Inc.

Based in Manhattan Beach, California, Skechers designs, develops and markets a diverse range of lifestyle footwear for men, women and children, as well as performance footwear for men and women. Skechers footwear is available in the United States and over 170 countries and territories worldwide via department and specialty stores, more than 3,575 Skechers Company-owned and third-party-owned retail stores, and the Company’s e-commerce websites. The Company manages its international business through a network of global distributors, joint venture partners in Asia, Israel and Mexico, and wholly-owned subsidiaries in Canada, Japan, India, and throughout Europe and Latin America. For more information, please visit about.skechers.com and follow us on Facebook, Instagram, and Twitter.

Reference in this press release to “Sales” refers to Skechers’ net sales reported under generally accepted accounting principles in the United States. This announcement also contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, Skechers’ future domestic and international growth, financial results and operations including expected net sales and earnings, its development of new products, future demand for its products, its planned domestic and international expansion, opening of new stores and additional expenditures, and advertising and marketing initiatives. Forward-looking statements can be identified by the use of forward-looking language such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will result,” “could,” “may,” “might,” or any variations of such words with similar meanings. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in forward-looking statements. Factors that might cause or contribute to such differences include the disruption of business and operations due to the COVID-19 pandemic; international economic, political and market conditions including the challenging consumer retail markets in the United States; sustaining, managing and forecasting costs and proper inventory levels; losing any significant customers; decreased demand by industry retailers and cancellation of order commitments due to the lack of popularity of particular designs and/or categories of products; maintaining brand image and intense competition among sellers of footwear for consumers, especially in the highly competitive performance footwear market; anticipating, identifying, interpreting or forecasting changes in fashion trends, consumer demand for the products and the various market factors described above; sales levels during the spring, back-to-school and holiday selling seasons; and other factors referenced or incorporated by reference in Skechers’ annual report on Form 10-K for the year ended December 31, 2019. More specifically, the COVID-19 pandemic has had and is currently having a significant impact on Skechers’ business, financial conditions, cash flow and results of operations. Forward-looking statements with respect to the COVID-19 pandemic include, without limitation, Skechers’ plans in response to this pandemic. At this time, there is significant uncertainty about the COVID-19 pandemic, including without limitation, (i) the duration and extent of the impact of the pandemic, (ii) governmental responses to the pandemic, including how such responses could impact Skechers’ business and operations, as well as the operations of its contract manufacturers and other business partners, (iii) the effectiveness of Skechers’ actions taken in response to these risks, and (iv) Skechers’ ability to effectively and timely adjust its plans in response to the rapidly changing retail and economic environment. Taking these and other risk factors associated with COVID-19 into consideration, the dynamic nature of these circumstances means that what is stated in this press release could change at any time, and as a result, actual results could differ materially from those contemplated by such forward-looking statements. The risks included here are not exhaustive. Skechers operates in a very competitive and rapidly changing environment. New risks emerge from time to time and we cannot predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results. Moreover, reported results should not be considered an indication of future performance.

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,158,766

 

 

$

824,876

 

Short-term investments

 

 

130,658

 

 

 

112,037

 

Trade accounts receivable, net

 

 

796,195

 

 

 

645,303

 

Other receivables

 

 

63,685

 

 

 

53,932

 

Total receivables

 

 

859,880

 

 

 

699,235

 

Inventories

 

 

985,659

 

 

 

1,069,863

 

Prepaid expenses and other current assets

 

 

95,444

 

 

 

113,580

 

Total current assets

 

 

3,230,407

 

 

 

2,819,591

 

Property, plant and equipment, net

 

 

787,980

 

 

 

738,925

 

Operating lease right-of-use assets

 

 

1,067,228

 

 

 

1,073,660

 

Deferred tax assets

 

 

48,858

 

 

 

49,088

 

Long-term investments

 

 

77,338

 

 

 

94,589

 

Other assets, net

 

 

183,209

 

 

 

117,090

 

Total non-current assets

 

 

2,164,613

 

 

 

2,073,352

 

TOTAL ASSETS

 

$

5,395,020

 

 

$

4,892,943

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current installments of long-term borrowings

 

$

16,926

 

 

$

66,234

 

Short-term borrowings

 

 

13,701

 

 

 

5,789

 

Accounts payable

 

 

624,677

 

 

 

764,844

 

Operating lease liabilities

 

 

189,394

 

 

 

191,129

 

Accrued expenses

 

 

198,292

 

 

 

210,235

 

Total current liabilities

 

 

1,042,990

 

 

 

1,238,231

 

Long-term borrowings, excluding current installments

 

 

669,152

 

 

 

49,183

 

Long-term operating lease liabilities

 

 

977,327

 

 

 

966,011

 

Deferred tax liabilities

 

 

12,948

 

 

 

322

 

Other long-term liabilities

 

 

104,137

 

 

 

103,089

 

Total non-current liabilities

 

 

1,763,564

 

 

 

1,118,605

 

Total liabilities

 

 

2,806,554

 

 

 

2,356,836

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Skechers U.S.A., Inc. equity

 

 

2,347,723

 

 

 

2,314,665

 

Non-controlling interests

 

 

240,743

 

 

 

221,442

 

Total stockholders' equity

 

 

2,588,466

 

 

 

2,536,107

 

TOTAL LIABILITIES AND EQUITY

 

$

5,395,020

 

 

$

4,892,943

 

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

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(In thousands, except per share data)

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2020

 

 

2019

 

 

Sales

 

$

1,242,345

 

 

$

1,276,756

 

 

Cost of sales

 

 

694,677

 

 

 

686,247

 

 

Gross profit

 

 

547,668

 

 

 

590,509

 

 

Royalty income

 

 

5,248

 

 

 

5,201

 

 

 

 

 

552,916

 

 

 

595,710

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling

 

 

74,055

 

 

 

70,214

 

 

General and administrative

 

 

434,051

 

 

 

359,632

 

 

 

 

 

508,106

 

 

 

429,846

 

 

Earnings from operations

 

 

44,810

 

 

 

165,864

 

 

Other income / (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,307

 

 

 

3,142

 

 

Interest expense

 

 

(1,999

)

 

 

(1,277

)

 

Other, net

 

 

3,471

 

 

 

(4,986

)

 

Total other income / (expense)

 

 

3,779

 

 

 

(3,121

)

 

Earnings before income tax expense

 

 

48,589

 

 

 

162,743

 

 

Income tax expense

 

 

7,429

 

 

 

31,724

 

 

Net earnings

 

 

41,160

 

 

 

131,019

 

 

Less: Net earnings / (loss) attributable to non-controlling interests

 

 

(7,941

)

 

 

22,261

 

 

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

 

$

49,101

 

 

$

108,758

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

$

0.32

 

 

$

0.71

 

 

Diluted

 

$

0.32

 

 

$

0.71

 

 

Weighted average shares used in calculating net earnings per share attributable to Skechers U.S.A, Inc.:

 

 

 

 

 

 

 

 

 

Basic

 

 

153,555

 

 

 

153,480

 

 

Diluted

 

 

154,652

 

 

 

154,134

 

 

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

SUPPLEMENTAL FINANCIAL INFORMATION

(Unaudited)

(In thousands)

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

Change

 

 

 

2020

 

 

2019

 

 

$

 

 

%

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic wholesale

 

$

377,962

 

 

$

346,694

 

 

$

31,268

 

 

 

9.0

%

International wholesale

 

 

575,199

 

 

 

628,067

 

 

 

(52,868

)

 

 

-8.4

%

Direct-to-consumer

 

 

289,184

 

 

 

301,995

 

 

 

(12,811

)

 

 

-4.2

%

Total

 

$

1,242,345

 

 

$

1,276,756

 

 

$

(34,411

)

 

 

-2.7

%

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic wholesale

 

$

145,277

 

 

$

126,451

 

 

$

18,826

 

 

 

14.9

%

International wholesale

 

 

240,475

 

 

 

288,728

 

 

 

(48,253

)

 

 

-16.7

%

Direct-to-consumer

 

 

161,916

 

 

 

175,330

 

 

 

(13,414

)

 

 

-7.7

%

Total

 

$

547,668

 

 

$

590,509

 

 

$

(42,841

)

 

 

-7.3

%

Gross margin percentage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic wholesale

 

38.4%

 

 

36.5%

 

 

 

 

 

 

 

 

 

International wholesale

 

41.8%

 

 

46.0%

 

 

 

 

 

 

 

 

 

Direct-to-consumer

 

56.0%

 

 

58.1%

 

 

 

 

 

 

 

 

 

Total gross margin percentage

 

44.1%

 

 

46.3%

 

 

 

 

 

 

 

 

 

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

RECONCILIATION OF GAAP EARNINGS FINANCIAL MEASURES TO CORRESPONDING

NON-GAAP FINANCIAL MEASURES

(Unaudited, dollars in thousands except per share data)

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

 

Change

 

 

 

Reported
GAAP
Measure

 

 

Constant
Currency
Adjustment(1)

 

 

Acquisition-
Related
Charges (1)

 

 

Adjusted for
Non-GAAP
Measure

 

 

Reported
GAAP
Measure

 

 

$

 

 

%

 

Sales

 

$

1,242,345

 

 

$

19,524

 

 

$

-

 

 

$

1,261,869

 

 

$

1,276,756

 

 

$

(14,887

)

 

 

-1.2

%

Cost of sales

 

 

694,677

 

 

 

12,806

 

 

 

(7,995

)

 

 

699,488

 

 

 

686,247

 

 

 

13,241

 

 

 

1.9

%

Gross profit

 

$

547,668

 

 

$

6,718

 

 

$

7,995

 

 

$

562,381

 

 

$

590,509

 

 

$

(28,128

)

 

 

-4.8

%

Royalty income

 

 

5,248

 

 

 

(295

)

 

 

 

 

 

 

4,953

 

 

 

5,201

 

 

 

(248

)

 

 

-4.8

%

SG&A expenses

 

 

508,106

 

 

 

7,852

 

 

 

(7,841

)

 

 

508,117

 

 

 

429,846

 

 

 

78,271

 

 

 

18.2

%

Earnings from operations

 

$

44,810

 

 

$

(1,429

)

 

$

15,836

 

 

$

59,217

 

 

$

165,864

 

 

$

(106,647

)

 

 

-64.3

%

Other income / (expense)

 

 

3,779

 

 

 

10,004

 

 

 

(13,877

)

 

 

(94

)

 

 

(3,121

)

 

 

3,027

 

 

 

-97.0

%

Income tax expense

 

 

7,429

 

 

 

227

 

 

 

-

 

 

 

7,656

 

 

 

31,724

 

 

 

(24,068

)

 

 

-75.9

%

Less: Non-controlling interests

 

 

(7,941

)

 

 

(538

)

 

 

-

 

 

 

(8,479

)

 

 

22,261

 

 

 

(30,740

)

 

 

-138.1

%

Net earnings

 

$

49,101

 

 

$

8,886

 

 

$

1,959

 

 

$

59,946

 

 

$

108,758

 

 

$

(48,812

)

 

 

-44.9

%

Diluted earnings per share

 

$

0.32

 

 

$

0.06

 

 

$

0.01

 

 

$

0.39

 

 

$

0.71

 

 

$

(0.32

)

 

 

-45.1

%

Constant Currency Adjustment and Acquisition Related Charges (1)

We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of period-over-period fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the company’s performance. We calculate constant currency percentages by converting our current period local currency financial results using the prior-period exchange rates and comparing these adjusted amounts to our prior period reported results. The financial information presented above, including Cost of sales, SG&A expenses, and Earnings from operations and Other income / (expense), have been presented excluding the effect of certain items related to the Company’s acquisition of its distributor in Mexico recorded in the first quarter of 2020.

Certain Non-GAAP Measures

We use the non-GAAP financial measures presented above to evaluate our results of operations, financial condition, liquidity and indebtedness. We believe that these non-GAAP measures provides useful information to investors regarding financial and business trends related to our results of operations, cash flows and indebtedness and that when this non-GAAP financial information is viewed with our GAAP financial information, investors are provided with valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the company’s operating performance and liquidity. In addition, these non-GAAP measures address questions the company routinely receives from analysts and investors and, in order to assure that all investors have access to similar data the company has determined that it is appropriate to make this data available to all investors. None of the non-GAAP measures presented should be considered as an alternative to net income or loss, operating income, cash flows from operating activities, total indebtedness or any other measures of operating performance and financial condition, liquidity or indebtedness derived in accordance with GAAP. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Our use of these terms may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

Company Contact:
David Weinberg
Chief Operating Officer
John Vandemore
Chief Financial Officer
SKECHERS USA, Inc.
(310) 318-3100

Investor Relations:
Andrew Greenebaum
Addo Investor Relations
(310) 829-5400

Press:
Jennifer Clay
Vice President,
Corporate Communications
SKECHERS USA, Inc.
(310) 318-3100

Source: SKECHERS USA, Inc.