Why Is Skechers (SKX) Down 8.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Skechers (SKX). Shares have lost about 8.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Skechers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Skechers Beats on Q1 Earnings, Raises 2022 EPS Outlook

Skechers reported first-quarter 2022 results with both the top and the bottom line outpacing the Zacks Consensus Estimate and improving year over year. SKX gained from growth across domestic and international channels, driven by strong wholesale and direct-to-consumer sales.

Let’s Analyze the Results

Skechers posted first-quarter earnings of 77 cents a share, beating the Zacks Consensus Estimate of 72 cents. Also, the bottom-line figure rose 22.2% from 63 cents earned in the year-earlier quarter.

SKX generated sales of $1,819.6 million that came above the Zacks Consensus Estimate of $1,691 million. The top line jumped 26.8% year over year owing to a 28.7% increase in domestic sales and a 25.5% rise in international sales. On constant-currency basis, total sales grew 28.7%. Management highlighted that quarterly sales set a new record for Skechers, despite the persistent pandemic-led headwinds, including worldwide store closures and supply-chain concerns.

Starting the first quarter of 2022, Skechers reported segment results for wholesale and direct-to-consumer operations, including its joint venture businesses. Both segments recorded growth, with Wholesale improving 32.7% and Direct-to-Consumer (DTC) growing 15.7%. Wholesale sales grew 32.7%, mainly on increases in AMER with 41.6% and EMEA with 42% rate. Wholesale volume also expanded 22.7% while average selling price inched up 8.6%.

DTC sales jumped 15.7% on strength of 157.3% in EMEA, 11.2% in AMER and 8.5% in APAC. DTC average selling price climbed 15.1% as a result of lower promotions and higher prices.

Solid gains from broad-based demand for SKX’s innovative comfort products, backed by its multimedia marketing team and an improved infrastructure aided the first-quarter performance. Skechers’ total international business comprised nearly 57% of sales, reflecting sturdy brand awareness worldwide.

Skechers recorded double-digit growth in both its physical stores and e-commerce business, mainly driven by a 15% increase in average price per unit from higher demand for comfort technology offerings and lower promotions.

Management launched sites in the Netherlands and Italy, and intends to unveil more across Europe, Asia and South America in 2022. The rollout of its e-commerce platform continued in the first quarter with the introduction of the sites in France and Spain. SKX has been enhancing its online presence for a while by further investing in the digital and omni-channel capabilities.

Regionwise, sales increased 31% year over year to $946.9 million in the Americas, 49% to $441.2 million in EMEA and 4% to $431.5 million in APAC.

Margins & Costs

Gross profit increased 20.2% year over year to $824.2 million. Gross margin declined 250 basis points (bps) to 45.3% due to increased freight expenses per unit, somewhat offset by increased average selling prices.

Total operating expenses grew 22.8% year over year to $648.3 million. However, the metric improved 120 bps as a percentage of sales to 35.6%. Selling expenses increased 18.5% from the year-ago period’s tally to $108.2 million due to a rise in global demand creation spend. Also, general and administrative expenses jumped 23.7% to $540.1 million due to elevated volume-driven labor, and warehouse and distribution costs.

Other Financial Aspects

As of Mar 31, 2022, cash and cash equivalents totaled $589.9 million while short-term investments amounted to $104.9 million. Skechers ended the quarter with long-term borrowings of $265.3 million and shareholders’ equity of $3,367.8 million, excluding non-controlling interests of $298.1 million. Further, the total inventory was $1,471 million.

In the reported quarter, management repurchased roughly 652,000 shares for $25 million. As of Mar 31, 2022, roughly a $475-million amount was available under its share repurchase program.

Skechers incurred capital expenditures worth $89.4 million during the first quarter. Management anticipates capital expenditures between $175 million and $225 million for the rest of 2022.

Outlook

Skechers now projects 2022 sales in the range of $7.2-$7.4 billion, up from the earlier forecast of $7-$7.2 billion and $6.29 billion, recorded in 2021.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -33.01% due to these changes.

VGM Scores

Currently, Skechers has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Skechers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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