On the heels of another strong quarter, Skechers USA Inc. is considering pursuing new financial options for its Asia business. According to a Bloomberg report, the footwear company is considering launching a Hong Kong IPO, which could raise nearly $1.5 billion.
Last week, Skechers reported earnings and revenue growth for Q3. The company reported particularly strong growth in China, where sales grew 10% year over year and 36% compared to Q3 of 2019.
“Skechers sales fared better in China than many competitor western brands, signaling market share gains, and easier navigation of headwinds to growth from pandemic related closures and restrictions that weighted on foot traffic,” wrote Stifel analyst Jim Duffy in a note.
In an effort to win the growing Chinese footwear market, Skechers launched a joint venture with Luen Thai Enterprises in 2007 to expand sales and distribution in China under the banner Skechers China. According to Bloomberg, recent success in China might push Skechers to consider buying out Luen Thai and launching an IPO for the region.
“The Company is constantly evaluating opportunities to increase shareholder value, including relative to its business in Asia, which we believe is meaningfully undervalued by the market,” said Skechers’ CFO John Vandemore in a statement. “These opportunities are evaluated as means to ensure that Skechers is appropriately valued based upon its significant growth prospects and position as the third largest footwear brand in the world. At present, we do not have any plans to pursue any material actions, including but not limited to undertaking an initial public offering for any part of our business or buying out any joint venture partners, in Asia or elsewhere.”
Skechers’ possible move marks another example of retailers focusing on separating and spinning off profitable sections of their business. The e-commerce arm of Saks Fifth Avenue reportedly started preparations to file for an initial public offering in October, targeting a valuation of around $6 billion for an IPO in the first half of 2022.
Saks’ move is meant to capitalize on soaring e-commerce growth, which has been more significant than brick and mortar sales in the pandemic. At Macy’s, one activist investor is currently pressuring the department store to undergo a similar split between online and store businesses to capitalize on an impressive digital growth in the last few quarters.
“The metrics are different for physical stores versus virtual, so separation can make some sense,” explained Matt Powell, the senior sports industry adviser for The NPD Group Inc. “It is also a great way to bring in cash to fund the spun-off business, and leave the balance of dollars for the original entity.”
In the case of Skechers, Powell said the move could be beneficial for the brand’s business in the region. In 2020, Skechers’ China sales were $924.5 million, or 20% of the $4.6 billion sales total for the year, according to an annual report.