The only thing worse than a rough quarter is another uninspiring financial outing. Shares of Skechers (SKX 2.81%) are sliding on Friday after posting disappointing second-quarter results, just as they retreated 27% the day after the footwear specialist posted a soft first quarter three months ago.
Skechers checked in with net sales that were in line with expectations, but things go downhill from there. Corporate overhead grew faster than top-line results, leading to declining operating profit and earnings per share. Guidance also suggests that growth will continue to decelerate, making this the walking and casual athletic-footwear giant's second problematic quarter in a row.
Image source: Skechers.
Walk this way
Net sales rose 10.6% to $1.135 billion in the second quarter, the second time in a row that Skechers has clocked in with sharply decelerating revenue growth. Sales growth peaked at 27% in a blowout fourth quarter, but 2018 has seen Skechers prove mortal. This is the first time in more than a year that net sales failed to grow by at least 16%, but, to be fair, Skechers landed near the middle of its April guidance calling for $1.12 billion to $1.145 billion in net sales for the second quarter.
The big stars in getting Skechers to achieve double-digit revenue growth were a 24.9% surge in its international wholesale business and an 11.3% spike in comps at its international company-owned stores. Things were more lackluster closer to home, as comps rose just 2.2% and Skechers' domestic wholesale business took a 7% dip.
Gross margin improved on the strength of its international gains, but a nearly 20% pop in SG&A expenses sent operating profit and earnings the wrong way. Net income declined 24% to hit $45.3 million or $0.29 a share. Skechers was targeting earnings per share of $0.38 to $0.43. Profits were weighed down by adverse foreign exchange moves and legal costs, but it still would've fallen short of expectations.
Looking out to the current quarter, Skechers is eyeing earnings per share of $0.50 to $0.55 on $1.2 billion to $1.225 billion in net sales. Don't read too much into the sequential improvement. This is a seasonal business. The better fit is last year's performance, and pitted against 2017's third quarter, we're looking at a 9.3% to 11.6% uptick on the top line and another year-over-year drop in earnings.
Skechers landing at the midpoint of its net sales guidance would be its third straight quarter of decelerating revenue growth, and negative earnings growth is never a good look. Skechers stock was a big gainer in 2017, but with margin concerns continuing and its domestic wholesale business declining again after turning things around last year, the footwear behemoth has some catching up to do in 2018.
