Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Skechers USA Inc (SKX, Financial) achieved record second-quarter sales of $2.16 billion, marking a 7.2% increase year-over-year.
- Gross margins improved by 220 basis points to 54.9%, driven by lower freight costs and a favorable mix of direct-to-consumer volumes.
- The company announced a new $1 billion share repurchase plan, enhancing its existing program.
- Strong global demand for Skechers' comfort and innovative products drove growth across all regions and segments.
- Direct-to-consumer sales grew 9.2%, exceeding $1 billion for the quarter for the first time in the company's history.
Negative Points
- Despite the strong sales, the results were below expectations due to severe foreign currency exchange headwinds.
- Supply chain disruptions, particularly impacting shipments to Europe, created a short-term imbalance between on-hand and in-transit inventory.
- Economic challenges in China, especially during the 6-18 holiday period, weakened consumer demand.
- Regulatory obstacles in India led to constrained inventory and negatively impacted sales.
- Operating expenses increased by 340 basis points as a percentage of sales, driven by higher rent, depreciation, and labor costs.
Q & A Highlights
Q: I want to ask about the guidance. It sounds like FX and supply chain were a little bit headwinds in the quarter impacted sales and earnings, maybe relative to what you thought. But yet you're raising the sales guidance and the EPS guidance. Can you just explain and dive into a little bit the sources of the raise and the guidance? What's causing you to raise the sales guidance, and specifically what's causing you to raise the EPS guidance given it sounds like these headwinds are still continuing?
A: Well, hello, Jay. I would say the number one thing is the better visibility we have into the back half order book, particularly on the wholesale side of a business and drilling down a bit from there on the domestic wholesale side, where we see really strong order flow. I'd couple that with the ramifications of what we've seen on the supply chain side, delaying deliveries to our distribution function in Europe still represent very good orders that are flowing into the back half of the year. So that's augmenting the strength we've already had. We continue to see very good DTC performance, internationally. Like a lot of others, we did see some traffic declines domestically, although our e-commerce platform performed nicely in the quarter. So, taking it all together, quite frankly, we simply have better visibility now. We've got a very nice order book built for domestic and international wholesale. We're mindful of the challenges that are out there, some of which may persist to one degree or another in the back half, but we believe we've adequately weighted that in the range of outcomes we could expect.
Q: Good afternoon. Thank you very much for taking my question. I wanted to ask about the comments around USGTC, around foot traffic, but then e-commerce being strong. There's a lot of concerns out there around just the overall environment over the summer in the footwear retail landscape. Maybe David, John, if you guys can comment about what you're thinking of seeing with the consumer. Is it weakening? Or is it just kind of a blip and then we can kind of see reacceleration for the third quarter for back to school?
A: Well, I'd admit it was a bit of an odd quarter. We did see some of the traffic slow down in our brick-and-mortar stores. That definitely had an effect. At the same time, though, our e-commerce platform did really well in the quarter. I think it's also important to recognize, we're getting back into a position vis-Ã -vis our wholesale customers, where they are better equipped with the right type of inventory. So I think when you think about the broader US market, clearly there's abundant strength at the consumer. The last thing I'd note, which we mentioned in our comments is, we had an incredibly strong prior year, nearly 30% up on DTC. And so, just maintaining that growth, if you look at it on some of your favorite two-year stack basis, it is still an incredible to your growth rate. So where we go from here, I think, is going to be largely determined by what we see in the back-to-school window and then holiday. I would characterize our expectations as modest at this juncture. We're not overweighting an expectation of domestic reacceleration. But we also think there's plenty of consumer demand out there, as is evidenced by what we're seeing in e-comm and in the wholesale order book.
Q: This is Peter McGoldrick on for Jim. Thanks for taking our question. First, I wanted to ask about the BIS regulations in India. You mentioned some local production and distribution. What's the magnitude of the local supply capacity relative to demand? And how are you planning for the progression of the regulatory environment, sort of bridging the gap, the timing to bridge the gap between near-term impacts and the long-term opportunity in that market?
A: The first thing I'd say is there was a noticeable impact from the regulatory environment in India this quarter. That had a significant effect on our, in particular, our Asia-Pac sales. So we definitely felt that and the attendant uncertainty in the quarter. The good news is, we continue to build local production. I won't give a percentage, but suffice it to say it's one of our primary areas of focus from a supply chain perspective, and it's getting better and better. It's simply, today, insufficient to accommodate our total demand. We have seen some positive trends in the market with regards to certification processes, both of domestic and international manufacturing. I would expect over the course of the year, things continue to get better, but that's a market that's a little bit tough to call from a timing perspective on when things are going to change. But overall, we continue to be optimistic, both about the back half of the year, but ultimately, that we will be able to, as a company, significantly develop what's needed locally, but then complement that with international manufacturing and maybe even someday look towards India as an export production market for us. So it had an impact, a big impact in Q2. We believe that will get significantly better over the back half of the year. And again, I can't stress enough, we have definitely seen some positive trends of late. And that has been encouraging as well.
Q: I just wanted to focus on international wholesale. Obviously, it slowed a little bit quarter over quarter, but seems like from your commentary, some of that's just temporary from issues like the Suez Canal, but then you're also not as positive on China. It sounds like as you were maybe three months ago on a near-term basis. So can you just talk a little bit about how we should think about the shape of the back half? What type of growth you're expecting there?
A: So yeah. I would say, I think Q2 was a bit distinct in some of the impacts we felt, particularly on the international wholesale side of things. We mentioned Europe, we mentioned India, and those were -- they had an outsized impact on our results versus our original expectations. I would still characterize our view on China as a net positive. Certainly, we expect growth in the year. And as we've said about China over the last couple of years, we've been somewhat surprised at the rather consistent improvement on abated we had seen. We know it's a market in recovery. We know there are some macro challenges. So again, I don't know that this outcome this quarter is particularly unanticipated in the grand view. But obviously, we didn't pick the timing right. And that's why you saw that. But I would also note, again, there's a big foreign currency adjustment on the Chinese sales. They would have been double the growth, which was more in line with where we had seen recent quarter over quarter kind of improvement. So again, I would characterize China, certainly as a market we have continued optimism for. We do expect there will be bumps in the road. This was one of them, but it doesn't diminish in any way our appetite to continue to invest in the market and the opportunity we think that market presents.
Q: Thanks, guys. Good afternoon. So regarding
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
