Skechers' European business registered some growth in the fourth quarter ended last Dec. 31, and that goes also for Eastern Europe where sales had slowed down due to the economic recession. However, revenues in Italy and Spain continued to show a negative trend.
In the fourth quarter, Skechers booked a 39.7 percent increase in overall group sales to $395.6 million thanks to the international business but even more by a dazzling 72.0 percent rise, or $69.9 million boost, in its domestic wholesale revenues. Wholesale shipments in the U.S. rose by 56.8 percent in volume, led by a triple-digit growth rate for women's shoes.
On top of higher volumes, Skechers' group revenues were also lifted by a 9.8 percent average increase in the price per pair.
In a conference call, Skechers' chief operating officer and chief financial officer, David Weinberg, said that its foreign subsidiaries and sales to foreign distributors enjoyed growth in all European markets, with growth rates averaging low to mid-single-digit rates, but some markets booked double-digit growth rates. In Spain and Italy, the business declined significantly in the fourth quarter.
For the current first quarter, sales volumes are seen rising on aggregate in Western Europe, even though Italy and Spain will still be weak. On the bright side, Weinberg stressed that the group is seeing a positive trend emerging in Italy. Growth in Germany, which is Skechers' largest European market along with the U.K., is expected to be modest in the first three months of the year.
Overall, international sales rose by 30.0 percent year-on-year for Skechers in the fourth quarter. Sales by the group's subsidiaries and joint ventures jumped by 40.5 percent and those to distributors went up by 17.0 percent. The Asia-Pacific region continued to perform strongly, with sales to distributors in the Philippines, South Korea, Taiwan, Australia and New Zealand up by a combined 27.0 percent. Asian joint ventures, consisting mainly of China and Hong Kong, were up by 33.0 percent. In the Middle East and Africa, sales surged by 115.0 percent, supported by store openings across the Middle East.
For the current first quarter, the company expects international sales to continue rising in line with the fourth quarter. It said that it is experiencing an increase in demand for its products in many foreign markets and anticipates more reorders.
The good performance in U.S. wholesale sales was achieved despite a decline in year-on-year sales at J.C. Penney, one of Skechers' main domestic clients. Weinberg expects sales there to continue falling on a yearly basis in the first quarter.
The group's directly operated stores increased their revenues by 16.2 percent, supported by the opening of new stores and positive same-store sales. Domestic retail sales were up by 16.6 percent, thanks to the addition of five more stores compared with a year earlier, and foreign retail revenues rose by 14.0 percent on the back of three new stores.
At the end of December, the group had 354 company-owned stores. Comparable store sales were up by 10.3 percent globally, rising by 9.9 percent at home and up by 12.6 percent abroad. The group plans to open 30-35 directly operated stores during 2013. Weinberg said that the company could raise the target if suitable locations are available and the retail business continues to perform well. He added that the retail business has so far maintained the same growth rate as in the fourth quarter. Skechers expects a low-double-digit increase in comparable store sales over the first quarter.
Skechers also had 106 joint venture and licensed stores in Asia at the end of 2012 and another 257 distributor or licensed shops worldwide.
E-commerce revenues were up by 39.4 percent but the company said it views its websites primarily as a branding tool. The group offers online sales in the U.S., the U.K. and Germany. Skechers pointed out that its e-commerce business is profitable.
The group continues to bolster its licensing business, which generated sales of $2.6 million in the quarter, with men's and women's sports apparel collections scheduled for a launch in the first quarter at selected Skechers stores. Li & Fung holds the license to produce fitness apparel and accessories collections for men and women. Weinberg said that it has converted a dozen of its stores to accommodate apparel.
Skechers' order backlog at the end of the fourth quarter was up by more than 20 percent. Weinberg said that group sales in the first quarter could also rise by about 20 percent and reach $420-426 million, but financial analysts are more optimistic and see the top line at $435 million.
Skechers improved its fourth-quarter gross margin to 42.6 percent from 39.8 percent a year earlier thanks to higher sales volumes, the improved quality of its inventory and strong sell-through at company-run stores. The group's earnings from operations reversed to an $8.0 million profit from a $103.1 million loss, while the net profit moved to a positive level of $4.0 million from a $57.7 million loss.
In the full year, sales slipped to $1.560 billion from $1.606 billion a year earlier and the bottom line swung to a $9.5 million net profit from a $67.5 million loss. At the end of the year, the group had $325.8 million in cash on its balance sheet.
Weinberg said that the group does not have plans to return the cash to shareholders because it still has to invest to build up its business. He added that even though he lacked expertise to gauge the prospects of the apparel business, he believes it can be rolled out worldwide and hopes it can become a $1 billion business. On top of the initial tests in its stores, the group has also started selling apparel through its wholesale network. Weinberg stressed that Li & Fung has the production capacity to meet any level of demand for the collection and apparel could become a “very big piece” of Skechers' business.