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Skechers USA, Inc. - International Growth Will Propel The Stock Higher


Shares of Skechers have fallen around 30% since announcing Q2-results which disappointed the market.

Concerns exist about the slowing of its domestic wholesale segment.

Skechers' declining wholesale sales were largely the result of a significant pull-forward into Q1, which was a strong quarter.

Skechers 'decline' in wholesale sales comes amidst a shift away from department stores and speciality retailers.

The footwear company reported earnings of $0.48 cents per share, below estimates of $0.52 cents per share and revenue of $877.8 million, missing analysts' expectations of $886.9 million. This miss sent the stock down a whopping 30%. The drop provides a great entry point for new investors in Skechers (NYSE:SKX). Now that the dust has settled we can take a closer look at the current figures.

SKX data by YCharts

Q2 results

  • EPS of $0.48, missing estimates of $0.52 by 4 cents.

This miss was largely the result of one-off items such as the $8.3m currency headwind ($0.05 cents a share), a fire in a Malaysian warehouse and a one-off VAT in Brazil, together impacting the EPS by $0.07 cents. Without these items the company wouldn't have missed, but actually beat estimates by $0.03.

  • Revenue growth was only 9.7% from Q2 2015, this is a lot slower than the 20%+ investors in skx are used to.

Investors in Skechers and in footwear companies in general should take note of the strong seasonality of the results of these companies. Domestic wholesale shrank by 25% in April as sales were pulled forward to Q1. This shouldn't be such a surprise as the company reported robust wholesale growth in Q1 on a shift of orders from April to March as a result of the timing of the Easter holiday. This has inflated the first quarter's performance at the expense of the second quarter. In Q2 2015 exactly the opposite happened, making comparison of the yoy quarters rather pointless.

When you compare the results of the first half year with that of last year, you can clearly see that the company is still growing robustly:

  • Revenue increased by 18% from $1.57 billion to $1.86 billion
  • Operational income rose 19% from $200 million to $239 million
  • Operational margins rose from 12.8% to 12.9% and gross margins from 45.4% to 46%

I can't deny the fact that the domestic wholesale numbers don't look pretty, with growth of just 3.2% in the first half of the year. Future growth will however be driven by the expansion of its...