Skechers Has a Valuable Defense Against Any US-China Tariff Impact

As U.S.-China tariffs begin to hit the footwear industry in earnest, Skechers USA Inc. says it is better positioned than many of its peers to weather the effects, thanks to the rapid growth of its international business.

On Tuesday, the company reported third-quarter results that beat analysts’ expectations on several fronts, including adjusted earnings per share of $0.71 versus the estimated $0.70 and record revenue of $1.35 billion versus an estimated $1.34 billion. It credited much of its success to its international expansion, which saw sales outside the U.S. surge 25.7% on a constant currency basis to $795.8 million, accounting for a record 58.8% of the company’s sales for the quarter.

Executives were upbeat that this growth will continue, giving the Manhattan Beach, Calif.-based brand a buffer against the worst impacts of the trade war at home. On September 1, the Trump administration slapped a 15% tariff hike — the first set of the fourth tranche — on $112 billion worth of Chinese imports, including more than two-thirds of China-made shoes. An additional $160 billion of consumer goods is expected to be hit in December, despite the partial trade agreement announced earlier this month between Washington and Beijing.

On a call with investors and analysts, Skechers CFO John Vandemore said the company expects its domestic wholesale business to see some impact, but he said “mitigation efforts” were underway. Specifically, such efforts include looking into alternative regions for sourcing, negotiating vendor concessions and looking at raising prices.

“We’ve made some decisions to absorb certain elements of the increase in the short term to the benefit of our customers,” he said. The company expects fourth-quarter gross margins to be flat or down slightly due in part to the tariffs; however, Vandemore added, “We do think the overall mix benefit of continuing to transition to more sales internationally and more direct-to-consumer has helped offset that.”

China, in fact, is one of the regions accounting for much of the company’s growth, as sales in the country grew more than 20% during the quarter on a constant currency basis.

Skechers was one of more than 200 footwear companies to sign an open letter to President Trump in August urging him to cancel the September and December tariff increases.

“There is no doubt that tariffs act as hidden taxes paid by American individuals and families,” the letter read. “When import costs rise and fall on imported footwear — whether based on the price of materials, transportation, labor or tariffs — those cost increases or savings are almost immediately passed on to consumers.”

According to the Footwear Distributors and Retailers of America, the added 15 percent tax will cost U.S. footwear consumers an additional $4 billion every year.

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