Sometimes a mixed quarter is good enough. Shares of Skechers (SKX +0.00%) initially moved higher after posting third-quarter results shortly after Thursday's close. Sales fell short of the footwear specialist's earlier forecast, but Skechers rocked on most of the other fronts.
Investors could use a warm market reception for a change this year. Shares of Skechers took a 21% hit the day after it posted disappointing second-quarter results in July, and that followed a 27% plunge the day after it fell woefully short with its soft first quarter in April. Skechers beat the odds, but after brutal back-to-back quarters, even an unimpressive financial outing can help turn sentiment around.
Image source: Skechers.
Mixing things up
Net sales rose 7.5% to hit a record $1.18 billion in the third quarter, short of the $1.2 billion to $1.22 billion that it was targeting three months ago. It's also the third consecutive quarter of decelerating top-line growth.
Skechers' sluggish domestic wholesale business continues to be a drag on performance, sliding 3% for the quarter. Comps at its company-owned retail stores rose 3% in the U.S. and dipped 0.8% internationally. The shining star remains Skechers' booming international wholesale business, up 11.8% for the period. Expanding its retail business overseas along with the strong showing on the wholesale front sent international sales up 12.5%. Stateside sales slowed to a 1.8% uptick.
Gross margin widened, and operating profit growth kept pace with its top-line spurt. A larger tax rate this time around kept eventual bottom-line growth in check. Skechers earned $0.58 a share for the quarter, just shy of the $0.59 a share that it rang up a year earlier but comfortably above the per-share forecast of $0.50 to $0.55 that it was modeling over the summer.
New guidance calls for $1.1 billion to $1.125 billion in sales for the fourth quarter, a sequential dip from the recently concluded third quarter but this is a seasonal business. Skechers' new outlook translates to 13% to 15% growth in the current quarter when pitted against the prior year's fourth quarter, a welcome return to accelerating growth. Skechers is projecting $0.20 to $0.25 in earnings per share for the period. It delivered a profit of $0.21 a share a year earlier, so at the midpoint of the outlook range we'd be eyeing a return to earnings growth after back-to-back quarters of declines.
Skechers still needs to get its domestic wholesale business back on track, but the stronger-than-expected bottom-line results and guidance calling for a return to accelerating sales growth and positive earnings growth outweigh the negative. Though Skechers isn't the monster growth stock it was a couple of years ago, it's taking the first steps toward a turnaround.
