Shoe company Skechers (NYSE:SKX) put up record revenue — again — in its most recent earnings report. There was a lot to like in this report as the company continues to execute well on all fronts. In the quarterly call with analysts, management was positive about the U.S. market, talked about good reasons why inventory grew, reiterated global growth aspirations, and explained why the backlog metric isn’t as important as it once was. Let’s take a look at some of what the executives had to say.
The U.S. business will grow
… it’s absolutely in our plan that this channel [domestic wholesale] continues to grow. And the United States, in general, will grow. Maybe our retail will grow somewhat faster, maybe wholesale, but our wholesale channel will continue to grow into next year.
— David Weinberg, chief financial officer
Skechers had a strong quarter all around in the U.S.
- 1.4% increase in wholesale.
- 9.5% increase in company-owned retail.
- 3.1% comp store sales increase.
The company put up these results even with temporary store closures due to hurricanes in Texas, Florida, and Puerto Rico. Weinberg attributed the strong growth in a difficult market to having great products, a fresh set of products, and the company’s decision to maintain its premium brand pricing. In difficult times, the strongest brands survive, and Skechers is happy to grow at low to mid-single digits until the promotional activity dies down. Skechers’ continued positive results are a strong sign that the brand resonates with customers.
Inventory was up, but for good reasons
We are comfortable with our current inventory due to increased revenues in our global business, increased store count worldwide, new product introductions and increased backlogs.
In my earnings preview article, I noted that it could be a warning sign for Skechers if inventory was up, and inventory did rise 33.3% over the past year. One key reason for this leap was the increase in the number of stores, up 41%, to 2,428 stores. When comparing inventory growth to store growth, it’s a good sign that inventory growth is slower than store growth, which means that the company is becoming more efficient with its distribution network.
This supports Weinberg’s comment that the company uses a “common inventory pool” and is good at moving supply to meet demand around the world. Additionally, the company was preparing for a big one-day e-commerce sales event — “Singles Day” in China, which was Nov. 11 — and a “big December and Q1.” As the company continues to grow its network of stores, this will be an important metric to watch.
International opportunity is bright
Given the increases in our international business, we believe international provides the greatest opportunity for continued growth. We remain committed to investing in the brand, product and infrastructure for all areas that present further growth opportunities.
International wholesale accounted for 43.4% of total sales for the quarter, and when combined with the company’s retail stores, international represented 53% of total sales. Here are the impressive international growth numbers for the quarter.
- 25.7% increase in wholesale.
- 43.8% increase in company-owned retail.
- 8.4% increase in comp store sales.
The company continues to invest around the globe. One way to look at where the company is investing is to look at store openings. The company opened 140 third-party-owned stores in the quarter in 27 countries outside of the U.S. with China and India being home to two-thirds of the new stores.
Reporting on backlog is a thing of the past
Everyone’s getting away from backlogs with direct-to-consumer and stuff like that. It’s very difficult for us to constantly go back to that same one number when we’re trying to make a presentation for the whole brand.
Backlog is a measure of orders from customers that have not yet been fulfilled. Generally, backlog is made up primarily of wholesale orders from retail partners, as other orders such as e-commerce orders are quickly fulfilled and won’t be open for more than a day or two. With the company’s e-commerce and retail businesses growing in importance, using backlog as an indicator of future sales would not be reliable. Given these comments, I wouldn’t be surprised if the company got away from reporting this metric in the future, especially for the U.S. market.
I’ve come to appreciate Skechers’ brand power and solid business model, management’s knowledge and candor, and the company’s ability to execute. This quarter further reinforced my perspective of the company.
Brian Withers has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Skechers. The Motley Fool has a disclosure policy.