After setting sales records in 2021, Skechers is seeing more encouraging results this year.
The comfort-focused footwear brand reported earnings on Tuesday for the first quarter of fiscal year 2022. Skechers reported quarterly sales of $1.82 billion, up 26.8% from last year. Net earnings for the first quarter were $121.2 million. Diluted earnings per share were $0.77, up 22.2% year over year. Both sales and earnings exceeded expectations from analysts surveyed by Yahoo Finance, which predicted revenues of $1.69 billion and earnings per share of $0.72.
Skechers’ shares were up over 4% in after hours trading.
“The first quarter sales record is a remarkable achievement given the ongoing pandemic-related challenges we continue to face, including worldwide store closures and supply chain disruptions,” said COO David Weinberg in a call with investors.
Even before Skechers’ Q1 earnings announcement, analysts were expecting strong results in line or exceeding the company’s expectations. In addition, analysts say other factors like supply chain recovery and wholesale growth will make for strong long-term results.
“The better than expected Q1 results and increased 2022 guidance in the face global supply chain constraints, increased freight costs and pandemic related lock-downs in China is proof that Skechers is emerging from the Covid-19 crisis stronger than it was before it began,” wrote Williams Trading analyst Sam Poser in a note to investors on Wednesday, giving Skechers a “Buy” rating.
Stifel analyst Jim Duffy also gave Skechers a “Buy” rating in advance of earnings and said the brand is “leveraging a speed-to-market advantage and scale advantage to gain share in the global footwear market.”
Like other shoe brands, Skechers has not been immune to challenges in the footwear industry over the last two years. Skechers mainly relies on Vietnam and China for manufacturing, regions that have been hit with lockdowns and factory shutdowns due to surges in COVID-19. Additionally, the conflict between Russia and Ukraine has prompted Skechers to halt product shipments to Russia.
Despite these headwinds, analysts are confident in Skechers’ potential for long-term growth.
While only less than 1% of Skechers’ sales come from Russia and Ukraine, Poser noted Skechers’ ability to quickly shift orders to different countries when needed, which has been helpful in redirecting products from Russia and Ukraine. This strength will also prove helpful for Skechers if there are issues with contract negotiations at the West Coast ports this summer and merchandise needs to be redirected elsewhere.
In regards to China, which has undergone extensive lockdowns in recent months, Skechers has the benefit of a broad geographical distribution across the country. CFO John Vandemore said in a call with investors that Skechers was taking a “conservative view” with regard to China’s impact on future quarters.
When it comes to channels, domestic wholesale sales are also expected to drive growth, thanks to competitor brands like Nike pulling out of wholesale channels.
“Long term growth seems reachable with industry giant Nike and other brands withdrawing from major retail partnerships to focus on their own DTC channels,” read a note from Jane Hali & Associates (JHA) LLC.
Poser also mentioned in a previous note that Skechers will “gain shelf space as a result of Nike’s decision to no longer sell to retailers which include DSW and Shoe Show, and the reduction of product allocations to others, including Foot Locker.”