It's easy to see why Skechers (SKX 1.42%) investors could have been gun shy ahead of this afternoon's quarterly results.The country's leading maker of walking footwear had seen its stock shed nearly a third of its value the day after reporting disappointing quarterly results last time out.
Things weren't as earth-rattling this time around. Net sales hit $722.7 million for the holiday quarter, 27% ahead of the prior year's showing. That was in line with the same 27% rate that it checked in with when the stock got slammed after its previous report -- and well below the 40% and 37% growth rates in showed off during the first two quarters of 2015 -- but at least the market was ready for it this time. Steady growth is better than decelerating growth.
Gross margins inched higher, and that's another welcome sight. Skechers' operating profit soared 66% to $54.7 million. Some of that margin expansion eroded on the way to the bottom line, as reported earnings climbed just 34% to $29.4 million, or $0.19 a share.
A couple of things held back bottom-line results. The footwear giant's effective tax rate was depressed a year ago, and that explains why pre-tax profits skyrocketed 76% -- only to see that growth more than cut in half after the tax bite. Skechers also had some one-time hits related to negative foreign currency translations, a move that was exacerbated as a result of international sales outpacing growth closer to home. International sales now account for 41% of the revenue mix at Skechers, closing in on its ultimate goal of generating half of business outside of the U.S. market.
Skechers was firing on all cylinders. Its wholesale business grew in the high single digits, with double-digit growth for its international wholesale and company-owned retail stores.
Skechers isn't going to rest on its laurels. It plans to open between 330 and 340 stores this year, growing its empire to more than 1,650 stores by year's end. A third of its stores are company-owned, but naturally they all result in growing demand for Skechers' footwear.
Things have only gotten better since the quarter came to a close. Skechers revealed that January sales clocked in 35% higher than the prior year with the first week of February also coming in strong. This is impressive since this comes on top of what proved to be the company's strongest quarter last year -- the 40% year-over-year surge during the first quarter.
Skechers commands half of the U.S. walking-footwear market, and it claims to be gaining market share. Investors should be grateful that Skechers itself is walking at a brisk pace. It's what the company needs to do if the stock is going to recover from the sharp decline that it has suffered since just before third-quarter results were announced. The road back will be long. Wednesday's close finds the stock trading 41% lower than where it was just before its previous earnings release, though the stock did initially move higher in after-hours trading on Wednesday. Every worthwhile journey begins with a good first step in the right direction.