Will Skechers Sustain Q1 Momentum?

(RTTNews) - This footwear company outperformed in the latest first quarter, despite significant headwinds from a strong U.S. dollar, slowdown at the west coast ports and seasonably cold weather in certain key markets and less efficient operations than originally anticipated at the company's European distribution center.

Skechers' stellar results reflect constant development of fresh and innovative products, the diverse global distribution strategy, and, finally, its tremendous logistical support and inventory management.

The Stock On Our Radar - Skechers USA Inc. (SKX) design and market Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under the Skechers GO brand name.

The company's footwear reflects a combination of style, quality and value that appeals to a broad range of consumers. Its brands are sold through department and specialty stores, athletic and independent retailers, boutiques and internet retailers. In addition to wholesale distribution, Skechers' footwear is available at its e-commerce websites and own retail stores.

Its objective is to profitably grow the company's operations worldwide while leveraging its recognizable Skechers brand through strong product lines, innovative advertising and diversified distribution channels.

Store Economics - As of February 15, 2015, the company owned and operated 119 concept stores, 146 factory outlet stores and 98 warehouse outlet stores in the United States, and 51 concept stores, 33 factory outlet stores, and three warehouse outlet stores internationally.

During 2015, the company intends to open 50 to 60 new stores.

Manufacturers & Customer Concentration - During 2014, five of the company's contract manufacturers accounted for about 58.9% of total purchases. One manufacturer accounted for 37.5%, and another accounted for 6.1% of total purchases.

During 2014, 2013 and 2012, Skechers' net sales to its five largest customers accounted for about 15.7%, 18.1% and 18.1% of total net sales, respectively. No customer accounted for more than 10.0% of net sales during 2014, 2013 and 2012.

Annual Financial Data - The company reported net income of $138.8 million or $2.72 per share in 2014 compared to $54.8 million or $1.08 per share in 2013, $9.51 million or $0.19 per share in 2012, loss $67.5 million or $1.39 per share in 2011, and profit $136.1 million or $2.78 per share in 2010.

Net sales rose to $2.38 billion in 2014 from $1.85 billion in 2013, $1.56 billion in 2012, $1.61 billion in 2011, and $2.01 billion in 2010.

With a significantly increased worldwide bookings, year-over-year worldwide backlogs were up mid double digits at March 31, 2015.

In Focus - With double-digit backlog increase, the strong growth planned in many countries including Germany, the UK, China and the UAE, the company believes this momentum will continue through the back half of 2015. Now with over 37% of its total sales, Skechers expects international to become 50% of its total business in the next three years to four years. Further, it expect to grow the total Skechers store base to about 1,250 by year-end 2015.

With the demand for the company's key product initiatives in the United States, Asia, Europe, the Middle East and South America remaining very high, it believes the growth it experienced in the first quarter will continue in 2015.

Latest Q1 Performance - The Manhattan Beach, California-based company reported stellar results for the first quarter, reflecting the continued strong demand for its men's, women's and kids footwear collections globally.

Net income was $56.1 million or $1.10 per share compared to $31.0 million or $0.61 per share in the prior year period.

First quarter 2015 net sales were $768.0 million, an increase of 40.5%, compared to $546.5 million generated a year ago.

"Skechers' first quarter net sales of $768.0 million mark the highest quarterly revenues in the Company's history. The net sales growth of 40.5 percent, which was against a previous record first quarter net sales in 2014, is attributable to the continued strong demand for our lifestyle, performance and kids' footwear from both our customers and consumers around the world," began David Weinberg, chief operating officer and chief financial officer.

The sales results are attributable to double-digit increases in domestic and international wholesale businesses, and worldwide company-owned retail business, as well as single-digit increases in ecommerce business.

Additionally, for the quarter, total company-owned retail store comps were up over 9% and domestic wholesale business saw an average price per pair increase of $1.27 or 5.9%.

Gross profit was $332.5 million, or 43.3% of net sales, compared to $240.4 million, or 44.0% of net sales in the previous year.

Earnings from operations totaled $88.2 million, or 11.5% of net sales in the latest first quarter, compared to $48.2 million, or 8.8% of net sales, for the first quarter of 2014.

Weinberg added: "Our record 2015 first quarter and a strong start to April in terms of revenues and backlogs, including double-digit domestic and international retail comps, leads us to believe that our accelerated growth trend will continue through the second quarter and into the back half of 2015. We believe we are well positioned to maintain this growth with the combination of $396.7 million in cash, in-line inventory levels, and the expectation of an additional 155 to 175 SKECHERS distributor-, joint venture-, franchisee- and Company-owned stores opening later this year in addition to the 39 opened in the first quarter. We are looking forward to what we believe will be record sales for a second quarter, delivering our back-to-school product, and a new annual sales record. We are comfortable with analysts' estimates for the second quarter, and we see upside opportunity in the third quarter."