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Skechers Fails to Impress in Another Volatile Quarter

By Rick Munarriz – Apr 18, 2019 at 3:45PM

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The leading walking-footwear specialist offers up its weakest top-line growth in nearly seven years.

Volatility seems to be the name of the game when you own Skechers (SKX -0.85%) during earnings season. The stock is making a double-digit-percentage move on earnings news for the fifth quarter in a row, and unfortunately for those long the stock, the big move is downward this time around.

The walking and athletic footwear maker stumbled on Thursday after posting its weakest revenue growth in nearly seven years. Sales may have hit a record $1.277 billion for the first quarter, but the 2.1% increase is its weakest year-over-year gain since the second quarter of 2012. Investors were braced for decelerating growth, but Skechers fell near the low end of the $1.275 billion to $1.3 billion in sales that it was forecasting for the period back in early February.

Exterior shot of Skechers store in Times Square.

Image source: Skechers.

Cooling down

After the company posted double-digit revenue growth in six of the seven previous quarters, it's disheartening to see a return to single-digit gains. Even if you factor in currency swings that weighed on the top line this time around, sales would've only risen 5.1% for the period.

Stocks commonly move on earnings news, but Skechers is one that can move as fast as folks donning its shoes this time of year. Volatility has been a big part of the ownership experience over the past year.

We're back to a big move down this time, and it's hard to find the silver lining. Skechers is quick to point out that it experienced a 9.3% surge in its international business, but that only draws attention to the 6.3% slide in stateside sales. Comps at its company-owned stores were positive both here and abroad, but once again we see Skechers buckling to weakness in its domestic wholesale segment.

The bottom line also failed to live up to expectations, but there are some one-time items weighing on that end of the income statement. A profit of $0.71 a share included the negative impact of some discrete items that decreased earnings by $0.02 a share. Skechers would've landed in the center of the $0.70 to $0.75 a share in net income that it was forecasting two months ago if it wasn't for those one-time items.

Profits also fell below the prior year's mark, but that's because its effective tax rate was just 9.6% last year as a result of the Tax Cuts and Jobs Act. Bulls looking for encouragement news within the sell-off can look a couple of lines higher in the income statement to find that the operating profit actually rose 11.5% to hit $165.9 million for the period.

New guidance for the current quarter calls for another period of single-digit growth on the top line. Skechers is counting on $1.2 billion to $1.225 billion in sales, up 5% to 7% from the prior year. This may seem like sequential improvement in growth, but investors were told back in February that sales would be weak in the first quarter because the shift in the Easter holiday to April this year would mean sacrificing sales in the first period for the benefit of the second quarter. The diluted earnings per share of $0.30 to $0.35 that it's modeling is just above the $0.29 a share that it posted a year earlier.

Investors are hoping that Skechers returns to double-digit growth in the second half of the year, and that will take a recovery in its domestic wholesale business. Today, the only safe bet here is that three months from now, the stock is likely to have another big move on earnings news.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Skechers. The Motley Fool has a disclosure policy.

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