February 6, 2019 | 1:45 PM by Jay Kunstman | jkunstman@jaguaranalytics.com

Skechers (SKX) – International Wildcard

On Thursday, after the market close, this footwear company will be reporting Q4 earnings.

Back in October, shares would close higher by 13% after reporting the following Q3 numbers:

-EPS of $0.58 vs $0.51 estimate – Beat
-Revenue of $1.176B vs $1.22B estimate – Miss
-Sales increased 7.5%
-Worldwide Same Store Sales increased 1.9%
-U.S. Same Store Sales increased 3%
-International Same Store Sales decreased 0.8%
-Global Retail Sales increased 10.6%
-International Wholesale Sales increased 11.8%
-Q4 EPS Guidance of $0.20 – $0.25 vs $0.18 estimate – Beat
-Q4 Revenue Guidance of $1.1B – $1.125B vs $1.08B estimate – Beat

Morgan Stanley commented saying that internationally, the U.K. and Canada drove most of the comp slowdown due to lower traffic. The U.K. pressure was driven by Brexit malaise as well as a very tough comp last year. Domestically, Skechers did raise prices on select products in its stores in order to observe consumers’ pricing sensitivity. Thus, Q3 retail gross margins were much stronger than the Street expected (+90 bps y/y vs.2Q -120 bps). Finally, Kids also continued to be slightly soft, but was up against a very tough compare Y/Y.

Based on what was described above, as we look ahead to tomorrow’s report, the main focus, I believe, will again be on international. Some recent analyst commentary surrounding this topic can be found below:

Buckingham – On December 6th, following meetings with COO David Weinberg and CFO John Vandemore, analyst Erik Tracy said that a 4Q sales inflection is predicated on a strong China business (including Singles Day, which management noted was significant, though not “wildly” so), easier Europe comparisons (Germany re-acceleration & strong Italy), and timing of domestic orders (shift with one large account).

Buckingham also mentions that FX was a ~100 bps revs/$0.02- $0.03 EPS drag in 3Q as currency GM tailwinds have turned into headwinds (~80bps benefit to GM in 2Q and ~40 bps headwind in 3Q) which should persist in 4Q and into FY19.

Morgan Stanley – Analyst Lauren Cassel, following Skechers investor meeting, said that from an international retail perspective, management’s tone suggested the weakness experienced in the U.K. and Canada has continued into 4Q, while China’s Single Day performance was very good, though SKX may have left some business on the table given the decision to not match deeper competitor promotions. FX will pose a larger headwind to revenue and gross margin in 1H19 than 2H18, given SKX’s largest currency exposures outside the US are to the Euro, Pound, and Yuan.

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