Footwear Company Also Achieves New Fourth Quarter 2018 Sales Record
of $1.08 Billion
MANHATTAN BEACH, Calif.–(BUSINESS WIRE)–
SKECHERS USA, Inc. (NYSE:SKX), a global footwear leader, today announced
financial results for the fourth quarter and full year ended December
31, 2018.
Fourth Quarter Highlights
“In 2018, our mindset was to seek new growth opportunities by
comprehensively evaluating our domestic and international businesses
while drilling down to specific regions and channels of distribution,”
began Robert Greenberg, chief executive officer of Skechers. “These
opportunities were across our product lines with proven styles, new
designs and collaborations, and in select regions where we saw great
potential. Product highlights included the resurgence of our heritage
Skechers D’Lites collection, which continues to gain momentum around the
world, our iconic Skechers GOwalk line, and our comfortable and
easy-to-wear men’s slip-ons, among others. With the strength of our
products, we remain the number one lifestyle casual, dress casual,
walking and work brand in the United States*. We also focused on growing
our online business around the world—improving the functionality of our
ecommerce sites in the United States and China, and launching an
ecommerce platform in India, while also increasing our global retail
footprint, ending 2018 with 2,998 Skechers Company-owned and third
party-owned stores. Additionally, we began delivering Spring 2019
product with the relevant marketing support, and we also started our
Fall/Winter 2019 meetings with key accounts. We are looking forward to
what we believe will be a new first quarter sales record.”
“2018 was a year of record sales—our first fourth quarter of over a
billion dollars and, combined with three previous record quarters, a new
annual sales record of $4.64 billion,” stated David Weinberg, chief
operating officer of Skechers. “For the quarter, this growth was fueled
by double-digit sales increases in each of our international
businesses—Company-owned retail, distributor, subsidiary and joint
venture, and by single digit sales increases in both our domestic
wholesale and retail businesses. For the year, we achieved double-digit
sales increases across our international portfolio and single-digit
sales increases in our total domestic business. In 2018, we also shipped
a record number of pairs from our distribution centers across South
America, North America, Japan and Europe, which is a testament to the
strength of our global operations and the breadth of our international
sales, which represented 54.0 percent of our total business for the
year.”
Weinberg continued: “Our international business represents our most
significant growth opportunity. To maximize on that opportunity in two
key areas, we recently completed the transition of our India joint
venture to a wholly owned subsidiary and reached an agreement in
principle to establish a joint venture in Mexico with our current
distribution partner. We expect these strategic investments to be
accretive to our diluted earnings per share in 2019. Additionally, we
continue to invest in infrastructure—we broke ground on our new
distribution center in China in the fourth quarter as well as on the
expansion of our global headquarters in Manhattan Beach in January. We
remain focused on efficiently and profitably growing our business for
the future.”
Fourth Quarter 2018 Financial Results
($ in millions, except per share data)
2018
2017
$
%
per Share
$0.31
($0.43)
$0.74
NM
For the fourth quarter, sales grew 11.4 percent as a result of an
18.4 percent increase in the Company’s international wholesale
business, a 7.5 percent increase in its Company-owned global retail
business, and a 4.8 percent increase in its domestic wholesale
business. The Company’s international business grew 17.9 percent and its
domestic business grew 4.1 percent. Fourth quarter comparable same
store sales in Company-owned retail stores, including ecommerce,
increased 1.1 percent, which included an increase of 3.0 percent in its
international stores and 0.4 percent in the United States.
Gross margins increased 90 basis points to 47.7 percent as higher
domestic margins from improved retail pricing and product mix was
partially offset by the negative impact of foreign currency exchange
rates.
SG&A expenses increased 7.9 percent in the quarter. Selling
expenses decreased $2.0 million or 3.2 percent, and improved as a
percentage of sales by 90 basis points from 6.6 percent to 5.7 percent. General
and administrative expenses increased $34.2 million, but improved 40
basis points as a percentage of sales from 35.1 percent to 34.7 percent.
General and administrative expenses grew $8.8 million in China to
support its continued expansion, and grew $9.4 million in retail from 47
additional Company-owned Skechers stores worldwide, of which 11 opened
in the fourth quarter. General and administrative expenses also grew
$9.7 million in domestic and corporate operations.
Earnings from operations increased $28.0 million, or 50.4 percent.
Net earnings were $47.4 million and diluted earnings per share
were $0.31. The Company’s income tax rate was 18.4 percent. In the
fourth quarter of 2017, the Tax Cuts and Jobs Act (“TCJA”) resulted in a
discrete income tax expense of $99.9 million, or $0.64 per diluted
share. As a result, the Company’s reported tax rate was 194.4 percent
for the fourth quarter of 2017, and 38.8 percent for the full year.
Excluding this discrete item, the Company’s tax rate would have been
12.2 percent for the fourth quarter and 12.8 percent for the full year.
Full-Year 2018 Financial Results
($ in millions, except per share data)
2018
2017
$
%
For the full year, sales grew 11.5 percent as a result of an 18.8
percent increase in the Company’s international wholesale
business, a 12.0 percent increase in its Company-owned global retail
business, and a 0.8 percent increase in its domestic wholesale
business. The Company’s international business increased 19.2 percent
and its domestic business increased by 3.5 percent. For the full year, comparable
same store sales in Company-owned retail stores, including
ecommerce, increased 9.2 percent, including an increase of 16.7 percent
in its international stores, and an increase of 6.7 percent in the
United States.
Gross margins improved 130 basis points driven by strength in the
Company’s international joint venture and subsidiary businesses, and
Company-owned domestic retail stores.
SG&A expenses increased 14.9 percent. Selling expenses
increased $23.2 million or 7.1 percent but improved 30 basis points as a
percentage of sales from 7.9 percent to 7.6 percent. General and
administrative expenses increased $210.5 million as a result of the
Company’s continued commitment to build its global infrastructure and
direct-to-consumer channels.
Earnings from operations increased $54.9 million, or 14.4 percent.
Net earnings were $301.0 million and diluted earnings per share
were $1.92. For the full year, the Company’s income tax rate was 14.0
percent.
Balance Sheet
At year-end, cash, cash equivalents and investments
totaled $1.07 billion, an increase of $312.2 million, or 41.4 percent
from December 31, 2017.
Total inventory, including inventory in transit, was $863.3
million, a $9.8 million or 1.1 percent decrease from December 31, 2017.
Working capital was $1.62 billion at December 31, 2018, a $114.2
million increase over December 31, 2017.
“In the fourth quarter, our strategy continued to yield strong results,”
began John Vandemore, chief financial officer of Skechers. “Despite
significant foreign currency headwinds, we grew our international
businesses, and domestically, the strength of our product continued to
deliver growth. We also executed against our capital allocation plan. In
2018, we returned $100.0 million to shareholders in the form of share
repurchases, while also investing in the necessary infrastructure to
support our growing business.”
Share Repurchase
During the three months ended December 31, 2018, the Company repurchased
approximately 1.7 million shares of its Class A common stock at a cost
of $41.9 million under its existing share repurchase program. In total,
the Company has repurchased almost 3.7 million shares of its Class A
common stock at a cost of $100 million through the full year in 2018. At
December 31, 2018, approximately $50.0 million remained available for
buying back shares under the Company’s share repurchase program.
Outlook
For the first quarter of 2019, the Company believes it will achieve
sales in the range of $1.275 billion to $1.300 billion, and diluted
earnings per share of $0.70 to $0.75. These amounts include the impact
of existing foreign exchange rates and a shift in some sales between the
first quarter and second quarter due to the timing of Easter in late
April 2019. We expect that our annual effective tax rate in 2019 will be
in the range of 14 percent to 18 percent.
Fourth Quarter and Full Year 2018 Conference
Call
The Company will host a conference call today at 1:30 p.m. PT / 4:30
p.m. Eastern Time to discuss its fourth quarter and full year 2018
financial results. The call can be accessed on the Investor Relations
section of the Company’s website at www.skx.com.
For those unable to participate during the live broadcast, a replay will
be available beginning February 7, 2019, at 7:30 p.m. ET, through
February 21, 2019, at 11:59 p.m. ET. To access the replay, dial
844-512-2921 (U.S.) or 412-317-6671 (International) and use passcode:
13686400.
*SportsScan, Year-end 2018, January 5, 2019
About SKECHERS USA, Inc.
SKECHERS USA, Inc., based in Manhattan Beach, California, 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,
2,998 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 and the Middle East, and wholly owned subsidiaries in
Canada, Japan, throughout Europe and Latin America. For more
information, please visit about.skechers.com
and follow us on Facebook,
Instagram,
and Twitter.
This announcement contains forward-looking statements that are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. 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 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 the Company’s annual report on Form 10-K for the year ended
December 31, 2017, and its quarterly report on Form 10-Q for the three
months ended September 30, 2018. 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 the companies cannot
predict all such risk factors, nor can the companies assess the impact
of all such risk factors on their respective businesses 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.
2018
2017
Total current assets
Total non-current liabilities
2018
2017
2018
2017
Skechers U.S.A., Inc.:
Adjusted earnings, net (loss) earnings
per share
and effective tax rate
Reported
GAAP
Measure
Adjustment
For TCJA
Adjusted
for
Non GAAP
Measure (1)
Net earnings (loss) attributable to Skechers U.S.A., Inc.
Skechers U.S.A., Inc.:
Adjusted earnings, net earnings per share
and effective tax rate
Reported
GAAP
Measure
Adjustment
For TCJA
Adjusted
for
Non GAAP
Measure (1)
Net earnings attributable to Skechers U.S.A., Inc.
Effective tax rate
(1) During the fourth quarter of 2017, the Company recorded a
net tax expense of $99.9 million related to the enactment of the Tax
Cuts and Jobs Act. The expense is primarily related to the TCJA’s
transition tax on previously unremitted earnings of non-U.S.
subsidiaries and is net of remeasurement of Skechers’ deferred tax
assets and liabilities considering the TCJA’s newly enacted tax rates.
In addition to reporting financial results in accordance with U.S. GAAP,
the Company also provides non-GAAP measures that adjust for the net
impact of enactment of the TCJA. This item represents a significant
charge that impacted the Company’s financial results. Net earnings
(loss), income tax expense, basic and diluted earnings (loss) per share,
and the effective tax rate are all measures for which the Company
provides the reported GAAP measure and an adjusted measure. The adjusted
measures are not in accordance with, nor are they a substitute for, GAAP
measures. The Company considers these non-GAAP measures in evaluating
and managing the Company’s operations. The Company believes that
discussion of results adjusted for this item is meaningful to investors
as it provides a useful analysis of ongoing underlying operating trends.
The determination of this item may not be comparable to similarly titled
measures used by other companies.
Constant Currency Sales
GAAP
Measure
Currency
Adjustment(1)
for Non
GAAP
Measure
GAAP
Measure
Certain Non-GAAP Measures
We use the non-GAAP financial measures discussed below to evaluate our
results of operations, financial condition, liquidity and indebtedness.
We believe that the presentation of 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.
Constant Currency Adjustment (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. No adjustment has been made to foreign currency exchange
transaction gains or losses in the calculation of constant currency net
income.
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
(310)
318-3100
Source: SKECHERS USA, Inc.