03 Dec Skechers USA (SKX)
The Coronavirus pandemic has been both sweet and sour for the retail industry in 2020. For some who had their e-commerce offerings in order, it was a godsend. Take Amazon (AMZN), for example, a multinational behemoth who only sells online, whose share price is up 68% for the year. For those that were more reliant on their bricks and mortar stores, however, it has been a much tougher experience.
Skechers, our stock report subject for today, has both but erred towards the physical shopping experience rather than the cyber one. In 2019 only 10% of company sales were through its e-commerce offerings, but with the onset of retail store closures, this quickly grew by 70% in the first quarter of the year. It then jumped a whopping 428.2% in the second quarter, and in their latest earnings announcement just last week online sales had surged another 172.1%. It’s a strong sign as to where the company is heading.
Skechers began life in Manhatten Beach, California in 1992. The brainchild of LA Gear CEO Robert Greenberg who wanted to concentrate his efforts on the casual footwear market. At the time, LA Gear controlled the women’s athletic market while Nike did the same for the men. Greenberg set about to create the same sort of dominance for the casual street shoe for both men and women.
Nowadays the Skechers brand is everywhere and covers everything from casual shoes and streetwear to high-performance sports shoes. They are sold on every continent (except Antarctica), in more than 120 countries, and ship upwards of 100 million pairs of shoes every year. It is currently the third-largest athletic footwear brand in the United States.
The company was hit hard in the second quarter of the year as store closures globally had a massive impact on its business. Sales were down 42% for the quarter – 37.8% in its international business and 47.3% domestically. Importantly, however, losses were offset by an 11.5% increase in its China sales where the brand has been seeing double-digit growth year on year.
Sales in China grew another 23.9 in the third quarter and were up by 18.1% in Europe. Overall sales were still down by 3.9% with domestic sales lower by 3.7%. Earnings per share and revenue were still well above estimates, however, and there is no doubt the tide is beginning to turn for the shoe giant.
John Vandemore, Skechers CFO, stated last week that “Skechers third quarter results illustrate the strength and resilience of our brand, as business across the globe began to recover from the effects of the global pandemic. There were many bright spots, from a return to growth in our domestic wholesale channel and continued strength in e-commerce to resurgent growth in China and Europe. We continue to invest for growth, including increased penetration in our direct-to-consumer channel, evident in new stores and an enhanced digital presence, as well as improved global distribution infrastructure.”
Skechers have been working hard in recent years to increase its international sales. In 2015 International revenue was just 40%, compared to the 60% it was by the end of 2019. 2020 has thrown a spanner in the works no doubt, but with things (hopefully) returning to some sort of normality in 2021, this expansion should continue. Its success in emerging markets such as China and India will continue to propel growth for the company.
The Skechers share price has had a tough run in recent years. 2018 was a watershed moment as it looked to reinvigorate its brand and reevaluate distribution and sales channels. The result was a 40% fall by the end of the year. 2019 showed that the changes that were made were for the better and the share price then rallied 85%. Then came the pandemic and the share price crashes again at the start of 2020. Despite a recent fightback, the share price is still down 23.6% for the year to date.
I’m predicting a strong comeback for Skechers heading into 2021. With a vaccine now approved in the UK and similar decisions set to be made in the US, Europe and the rest of the globe retails stores are set to bounce back in style. Add to that the leaps and bounds Skechers have made in their e-commerce space over the last nine months and the company is well set up for the post-pandemic era. Definitely a strong buy and hold at these prices.