The company behind the No. 1 walking shoe brand in the U.S., Skechers (SKX +0.00%), is set to announce earnings on Thursday, Oct. 19. The company has put together a series of solid growth quarters -- reporting a 17% year-over-year increase in net sales in the second quarter -- but the stock is trailing the market over the past 12 months. 
The company attributed growth in the second quarter to a 6.4% increase in its domestic wholesale business, an 18.6% increase in its international wholesale business, and a 28% percent increase in the company-owned global retail business, including comps at 7.1%. While inventory rose in the second quarter, management indicates that it is in line with expectations.
Following are a few key stats, along with three questions investors should be asking when the company reports earnings.
| Metric | Number |
|---|---|
| Projected Q3 sales | $1.050 billion to $1.075 billion |
| Projected year-over-year net sales growth | 11% to 14% |
| Inventory in Q2 | $669.7 million |
| Cash and cash equivalents as of June 30, 2017 | $751.6 million |
Data source: Skechers.
Image Source: Skechers
Will Skechers' record sales continue?
Skechers has reported record revenue in three quarters in a row, and management is projecting the third quarter, which will include back-to-school shopping, will be the fourth. The company understands that the U.S. retail market is challenged and has projected flat growth in the domestic wholesale business, coming off 6.4% growth in Q2.
While the soft U.S. market is a concern, Skechers has been growing its international business to the point where it accounted for 48.5% of revenue in the first six months of 2017. Last quarter, the company's international wholesale business grew 18.6% and is expected to have grown by double digits in the third quarter as well. Adding to the positive growth, company-owned retail stores have been on a tear, growing 28% last quarter on global comparable-store sales of 7.1%.
Skechers' brand continues to remain strong in a tumultuous retail market. The third quarter is historically the highest revenue quarter for the year, and these results will help define Skechers full-year trajectory.
Will momentum and investment in China continue?
China has been a significant growth market for Skechers, selling 3.7 million pairs last quarter and achieving 61% sales growth. E-commerce has been a tremendous contributor to the success with management citing "triple-digit" growth last quarter in China. The company is investing to win in this market, adding Skechers branded stores, partnering with retailers, and building a distribution center. The company ended last quarter with 685 Skechers stores and 2,235 points of sale in China.
The company has projected that China could account for $500 million in sales for the year or more if "singles day" sales in November are a success. I'll be watching for the company to confirm the $500 million sales number, provide an update on preparations for "singles day" -- a shopping "holiday" that tops Black Friday -- and discuss its investments in this region.
Is inventory in control?
In Q2, inventory was $669.7 million, which was $79 million higher than the previous year. While growing inventory could be a sign of slowing growth or poor customer reception of a product, management indicated this growth was in line with expectations. The company cited strong international growth, company-owned store growth, new product introductions, and increased backlogs as a reason for the rise. I'm comfortable with management's explanation, as the company was positioning inventory for its largest quarter of sales in the year.
Skechers has a tremendous network of company-owned stores that allow it to showcase its expansive line of inventory, while enabling slower-moving inventory or returns to be sold off through factory and warehouse stores. As the company expands internationally, the effectiveness of this store network will be tested and growing inventory can be a sign of challenges. I'll be watching for continued focus on keeping its inventory in line.
