Going into Skechers U.S.A., Inc.'s (NYSE:SKX) quarterly financial report, investors didn't have high hopes for the footwear purveyor. Other athletic shoe companies and retailers have been pummeled by waning interest and the ever-growing march toward e-commerce. Just a year prior, the company had lost more than a third of its value as weak sales and even weaker guidance pounded the stock.

But when Skechers revealed its financial results after the market closed on Thursday, the company reported record sales that exceeded its own guidance as well as analysts expectations, and the stock jumped as much as 40% on the news. Let's see what's driving those gains.

Customer carrying two Skechers bags out of the store, while wearing Skechers shoes.

Skechers performance had investors putting on their dancing shoes. Image source: Skechers.

Skechers put its foot down

For the just completed third quarter, Skechers net sales grew to a quarterly record of $1.095 billion, up 16% year over year.  This exceeded the top end of the company's forecasted range of $1.05 billion to $1.075 billion, and the analysts' consensus estimates of $1.07 billion. The company has achieved a record $3 billion in sales so far this year.

The strong sales were lead by a 25.7% increase in Skechers international wholesale business, a 1.4% increase in its domestic wholesale business, and an 18.6% increase from the company's global retail business. Sales in China grew by nearly 50% during the quarter and the company has high expectations for the coming Single's Day, China's largest shopping day, which happens in November. 

Another pleasant surprise was the same store sales growth, which clocked in at 4.4%. Domestic comps came in at 3.1%, which was surprising, considering the temporary store closures resulting from recent hurricanes, and that stores in Puerto Rico remain closed. In the prior year, the company had produced $1.5 million in sales on the days corresponding to this year's closures.

Skechers gross margins improved during the quarter at 47% during the current period, up from 43% in the year ago quarter.

Skechers reported net income of $92.3 million, up 42% year over year. This produced adjusted earnings of $0.59 per share, a 40% jump from the prior year quarter. This exceeded the company's expectations of earnings in a range of $0.42 to $0.47 per share, while also eclipsing the $0.43 expected by analysts surveyed by Thomson Reuters. 

During the quarter the company grew its company-owned stores by 623 locations, growing its store base to 2,428 locations worldwide.

A pair of Skechers shoes in the dark with lighted soles and a sparkler lighting the background.

Skechers investors saw fireworks! Image source: Skechers.

Happy feet

Reviewing the overwhelmingly positive results, David Weinberg, Skechers chief operating officer and chief financial officer had this to say:

The strong international growth, including the continued strength in China, the resurgence of the United Kingdom and growth across all of Europe combined with our strong international retail business, resulted in international wholesale and retail representing 53 percent of our total sales in the third quarter.

Stepping it up

Based on the strong growth achieved this quarter, Skechers believes it will hit net sales next quarter in a range of $860 million to $885 million resulting in diluted earnings per share of $0.09 to $0.14, which would represent strong growth for what is a seasonally weak quarter.

The blowout this quarter was all the more astonishing considering the results produced by other shoe retailers and major brands in recent months. This is a far cry from Skechers results of just a year ago, and investors are reaping the rewards, now that the shoe is on the other foot.


Danny Vena owns shares of Skechers. The Motley Fool owns shares of and recommends Skechers. The Motley Fool has a disclosure policy.