SkechersSKX released its second-quarter 2024 results, revealing that both revenue and profit fell short of the Zacks Consensus Estimate. Despite an increase in sales, earnings experienced a decline compared to the previous year. The company grappled with various hurdles including supply-chain disruptions, foreign currency challenges, regulatory matters in India, and weakened consumer demand in China.
The brand, however, remained steadfast in its approach by maintaining its focus on product innovation, particularly in comfort technologies and strategic collaborations. A dedicated effort towards marketing, incorporating new avenues for football and basketball products, was pivotal in driving brand expansion. Skechers remains resolute in its aspiration of achieving $10 billion in annual sales by 2026.
Over the preceding year, the stock of this Zacks Rank #1 (Strong Buy) entity rose by 24.7%, standing in stark contrast to the industry’s overall decline of 30.3%.
Skechers U.S.A., Inc. Price Performance
Skechers U.S.A., Inc. stock performance chart | Skechers U.S.A., Inc. Quote
Key Highlights of Q2 Performance
Skechers reported earnings of 91 cents per share for the second quarter, falling short of the anticipated 94 cents as per the Zacks Consensus Estimate. Furthermore, the bottom line saw a decline of 7.1% compared to the same quarter a year ago.
The company achieved sales of $2,157.6 million, missing the consensus projection of $2,219 million. Nevertheless, sales experienced a 7.2% growth year over year, driven by a 6.9% increase in international sales and a 7.7% surge in domestic sales. The growth in both domestic and international sales was fueled by robust Direct-to-Consumer (DTC) and Wholesale sales. When analyzed on a constant-currency basis, total sales exhibited an 8.7% growth
The wholesale sales rose by 5.5% to $1.13 billion while DTC surged by 9.2% to $1.03 billion compared to the previous year. Notably, the wholesale sales in the Americas (“AMER”) soared by 10.3%, in contrast to a 2.6% dip in the Asia Pacific (“APAC”) region. The DTC unit witnessed a substantial 10.2% increase, with international DTC sales growing by 15.2%, contributing to an overall growth.
In terms of regions, sales saw a year-over-year increase of 7.2% to $1.10 billion in the AMER, 13.7% to $492.5 million in the EMEA, and 2.2% to $564.2 million in the APAC. Projections for sales growth from the AMER, EMEA, and APAC regions were slightly below actual performance
Image Source: Zacks Investment Research
Margin Analysis and Costs
The company’s gross profit rose by 11.7% year over year to $1.18 billion, with the gross margin expanding by 220 basis points to 54.9%. This expansion was primarily attributed to reduced costs per unit stemming from lower freight expenses and favorable DTC volume mix. The exhibited margin expansion was higher than the estimated figure for the quarter.
Total operating expenses witnessed a 16% increase year over year, amounting to $977.9 million. As a percentage of sales, operating expenses edged up by 340 basis points to 45.3%. The rise in selling expenses and general administrative costs was due to amplification in brand marketing expenditure and elevated labor and operational charges.
Selling expenses escalated by 26.1% to $235.9 million while general and administrative costs surged by 13.2% to $742 million. These elevated costs were primarily propelled by increased brand promotional expenses, coupled with heightened labor and operational charges including rentals and depreciation.
Financial Standing and Projections
As of June 30, 2024, Skechers held cash and cash equivalents amounting to $1.28 billion along with short-term investments totaling $130.1 million. The quarter concluded with long-term borrowings of $45.7 million and shareholders’ equity of $4.22 billion, excluding non-controlling interests of $292.3 million. A capital expenditure of $169.5 million was incurred in the quarter.
In the second quarter of 2024, the company repurchased 0.9 million shares of its Class A common stock for $60 million and authorized a new $1 billion share repurchase program.
Store Operations and Future Plans
By June 30, 2024, SKX had a total of 5,267 stores including 576 domestic outlets, 1,126 international locations, and 3,565 distributors, licensee, and franchise stores. The second quarter saw the opening of 25 domestic stores, 98 international outlets, and 194 distributor, licensee, and franchise stores. In the same period, 12 domestic stores, 57 international outlets, and 149 distributor, licensee, and franchise stores were closed.
Future Outlook
For the year 2024, management has set sales expectations between $8.88 billion and $8.98 billion along with projected earnings per share (“EPS”) falling within the range of $4.08 and $4.18. In addition, the company forecasts a capital expenditure in the range of $325 million to $375 million for 2024. The third quarter of 2024 is expected to see sales between $2.30 billion and $2.35 billion and EPS in the range of $1.10 and $1.15.
Other Top Performing Stocks
Among other retail stocks, exemplary performers include The Gap, Inc. GPS, Abercrombie & Fitch Co. ANF, and Stitch Fix SFIX.
Gap, renowned as an international specialty retailer, displaying a varied assortment of apparel, accessories, and personal care products, holds a Zacks Rank #1.
The Zacks Consensus Estimate for Gap’s fiscal 2024 earnings and sales indicates robust growth, with a notable earnings surprise in the last four quarters.
Abercrombie, a premium casual apparel retailer, currently enjoys a Zacks Rank of 1, exhibiting substantial earnings surprises in recent times.
Stitch Fix, a prominent online personal styling service, carrying a Zacks Rank of 2 (Buy), possesses a positive growth outlook for fiscal 2024, as evidenced by the trailing four-quarter average earnings surprise.