Skechers is continuing to focus on its performance footwear division for future growth opportunities.

On the company’s third quarter earnings call on Thursday, Skechers chief operating officer David Weinberg told analysts that the company see a “significant opportunity” to build on its existing performance business, which includes technical running, golf and pickleball footwear with the addition of new categories that will attract a broader audience.

“We are in the early stages of team sports with a growing roster of Olympians and elite athletes competing in our basketball, soccer, court and cleated footwear globally,” Weinberg said. “Regardless of the sport and skill level, elite or recreational, athletes can trust that with Skechers, they will experience and enjoy comfort that performs.”

The company’s COO added that raising awareness and creating purchase intent for its lifestyle and performance technologies has been an “integral part” of Skechers’ growth.

“We achieved this through both feature-focused marketing campaigns and by leveraging our strong team of ambassadors and athletes,” he noted. “Earlier this quarter, Snoop Dogg and Philadelphia 76ers basketball star Joel Embiid both achieved golden moments at the Paris Games wearing Skechers. Joel and Team USA earned a gold medal and basketball while Snoop championed at around the world in his Skechers by Snoop Dogg Go shoes.”

Pressed further by analysts on Thursday call about the category growth, Weinberg said that the move into technical athletics is positive for the brand. “We do a lot of our own sales online, direct-to-consumer, so there’s plenty of outlets for it,” the executive said. “This is just the very, very early stages. And I think we still have a ways to go before we become a major player in that field, but we are certainly taking some steps, and it’s certainly working for us, and we’re getting some positive feedback around the world in some places, certainly more than others.”

This comes as the Manhattan Beach, Calif.-based footwear company reported Q3 sales of $2.35 billion, a 15.9 percent increase from $2 billion in the same period last year. Net earnings were $193.2 million and diluted earnings per share were $1.26, compared with prior-year net earnings of $145.4 million and diluted earnings per share of 93 cents.

These earnings came at the top of Skechers’ expectations. The company stated last quarter that it expected to see sales between $2.3 billion and $2.35 billion, with diluted earnings per share between $1.10 and $1.15 in Q3.

Looking ahead, Skechers expects to achieve sales between $2.17 billion and $2.22 billion and diluted earnings per share of between 70 cents and 75 cents in the fourth quarter.

For the full fiscal year 2024, the company raised its guidance, predicting sales to be between $8.93 billion and $8.98 billion, with diluted earnings per share between $4.20 and $4.25. This is up from its previous guidance of $8.88 billion and $8.98 billion in sales and diluted earnings per share of $4.08 to $4.18.

Shares for Skechers USA Inc. jumped nearly 10 percent in after-hours trading on Thursday following the company’s record third-quarter earnings.

The Manhattan Beach, Calif.-based footwear company reported Q3 sales of $2.35 billion, a 15.9 percent increase from $2 billion in the same period last year. Net earnings were $193.2 million and diluted earnings per share were $1.26, compared with prior-year net earnings of $145.4 million and diluted earnings per share of 93 cents.

These earnings came at the top of Skechers’ expectations. The company stated last quarter that it expected to see sales between $2.3 billion and $2.35 billion, with diluted earnings per share between $1.10 and $1.15 in Q3.

In the third quarter, international sales were up 16.4 percent and domestic net sales grew 15.3 percent. By channel, direct-to-consumer sales rose 9.6 percent to $81.3 million, and wholesale sales spiked 20.6 percent to $241.4 million. As of Sept. 30, Skechers said it had 592 domestic stores, 1,151 international stores and 3,589 distributor, licensee or franchise stores. Total store count at the end of Q3 was 5,332.

Skechers chief operating officer David Weinberg said in a statement that strong consumer demand for the brand across all distribution channels resulted in this new quarterly sales record.

“With the growing awareness and broad acceptance of our comfort technology products by our partners and consumers, we believe each of these regions represent continued growth opportunities for Skechers,” Weinberg said. “We continue to invest in our operational capabilities and improve the customer experience, while meeting the increased global demand for our products and positioning Skechers for profitable growth now and in the future.”

Robert Greenberg, chief executive officer of Skechers, added that the company’s significant growth in the third quarter can be attributed to “offering the right product at the right price and ensuring availability at locations where consumers want to shop.”

“Raising awareness of our technologies, such as Skechers Hands Free Slip-ins, has been integral to our global growth,” Greenberg noted. “We achieve this through both technology-focused marketing campaigns and by leveraging our strong team of ambassadors and athletes.”

The CEO added that the company is in the early stages of team sports with the global rollout of Skechers court, football (soccer), basketball and cleated styles, supported by a growing roster of Olympians and elite athletes competing in Skechers footwear.

“We believe there are significant opportunities to build on our technical performance business,” Greenberg said. “While continued investment in product and marketing drove record quarterly sales, it is our commitment to deliver what consumers want that inspires us as we strive to bring innovation to people from all walks of life.”

Looking ahead, Skechers expects to achieve sales between $2.17 billion and $2.22 billion and diluted earnings per share of between 70 cents and 75 cents in the fourth quarter.

For the full fiscal year 2024, the company raised its guidance, predicting sales to be between $8.93 billion and $8.98 billion, with diluted earnings per share between $4.20 and $4.25. This is up from its previous guidance of $8.88 billion and $8.98 billion in sales and diluted earnings per share of $4.08 to $4.18.

Skechers’ 2023 domestic wholesale challenges seemingly turned a corner in the first quarter of 2024.

According to the Manhattan Beach, Calif.-based footwear company, wholesale net sales increased 9.8 percent year-over-year to $1.42 billion in the first quarter, with growth across all regions. Domestic wholesale sales, which declined 10 percent in Q4 2023, increased 7.7 percent in Q1 versus the same period last year.

The return to wholesale growth was good news on Wall Street, with shares for Skechers up nearly 13 percent in mid-day trading on Friday.

On the company’s first quarter earnings call on Thursday, chief operating officer David Weinberg told analysts that this return to wholesale sales growth was due to “significant improvement” in the flow of orders including customers taking goods earlier within their shipping windows.

“International wholesale sales also returned to growth, increasing 11 percent and as the inventory congestion impacting certain partners, particularly in Europe, evaded,” Weinberg said. “We were encouraged by our wholesale segment, both domestically and internationally, and continue to expect year-over-year growth as we move through the balance of the year.”

Pressed further by analysts on whether these earlier shipments will impact second quarter wholesale sales, Weinberg noted that Q1’s early deliveries were replenishment-driven due to strong sell-through rates as more retail partners embrace the brand’s comfort technology product assortment.

“What I think we saw more than anything else was not new orders, but an acceleration of existing orders,” the COO said. “Customers are wanting product sooner to fulfill what is sold out. As we said all of last year, we always saw a really good price sustainability. We saw good margins. Inventories were lean. I think we’re starting to finally see the benefit of that as some of the partners out there cleanse themselves of some of the inventory issues they were suffering from last year.”

As for what’s to come in the second quarter, Weinberg said that right now, the company is anticipating that the wholesale segment will grow mid to high single digits.

“We’re seeing really encouraging signs in our wholesale activity, our order book as well as just the sell-through that we’re seeing,” the executive said. “We’re seeing also some really good success with partners who have come to fully embrace our Comfort Technology product suite. And so, I would suggest you that we’re likely to see something between mid- to high single digits. And then beyond the current booking window, we’re starting to receive orders and they all continue to suggest that things will continue to grow, which is a great position for the brand to be in.”

The return to domestic wholesale growth comes at the same time Skechers reported Thursday that net sales grew 12.5 percent to $2.25 billion in Q1, compared to $2.0 billion the same period last year. Net earnings were $206.6 million and diluted earnings per share were $1.33 compared with prior year net earnings of $160.4 million and diluted earnings per share of $1.02.

Looking ahead, Skechers said it expects to achieve sales between $2.175 billion and $2.225 billion and diluted earnings per share of between 85 cents and 90 cents in the second quarter. Further, the company believes that for the fiscal year 2024, it will achieve sales between $8.725 and $8.875 billion and diluted earnings per share of between $3.95 and $4.10.

David Weinberg, EVP, COO and director at Skechers, told analysts on the company’s earnings call Thursday night that its second quarter guidance incorporates all the challenges it has seen in the domestic wholesale side.

“Domestic wholesale is the largest headwind we’re facing,” Weinberg noted. “There was a little bit of Q2 [merchandise] that ended up shipping a little bit earlier, which impacted Q1 [sales]. It’s not an extraordinary amount, but it is an amount that came out of Q2 into Q1.”

Indeed, the Los Angeles-based footwear company reported on Thursday that its domestic wholesale business was down 18 percent in the first quarter, mainly related to inventory congestion issues impacting many of its retail partners.

Weinberg said he anticipates Skechers domestic wholesale segment to get worse in Q2, citing a slowdown in orders for the quarter. “While we’re hopeful that we’ll start to see a turn in that soon, the reality is what we can bank on at the moment is that this headwind will continue,” he said.

But the rest of Skechers’ wholesale business saw gains. In fact, the footwear brand saw 3.5 percent growth in wholesale overall. “Wholesale remains a critical element of our growth strategy, representing 65 percent of our total sales for the quarter,” Weinberg said on Thursday’s call. “The 3.5 percent year-over-year sales increase was driven by 20 percent growth in our international wholesale business, where nearly every market achieved double-digit growth.”

Skechers’ direct-to-consumer business was the star of the quarter, however, with the brand reporting an increase of 24.5 percent in its overall direct-to-consumer business in Q1. Domestic direct-to-consumer sales increased 25 percent due to double-digit growth in both its brick-and-mortar and e-commerce channels, while international direct-to-consumer sales grew 24 percent due to double-digit increases in nearly every market and even triple digit in some. In China, direct-to-consumer grew due to the return of consumers to a brick-and-mortar shopping experience, the highest gains came from Hong Kong, South Korea, Chile, Thailand and Canada.

“We remain focused on growing our direct-to-consumer segment to efficiently drive sales and connect with our loyal consumers,” Weinberg said.

This comes as the brand continues to open its own stores, debuting 56 company-owned Skechers stores and closing 25 in the first quarter. The company ended the quarter with 4,549 Skechers stores worldwide, of which 3,074 were third-party stores, including 108 opened in the first quarter, 71 of which were in China, 15 in India and our first store in Tajikistan. In the second quarter to date, Skechers has opened one company-owned store in the United States and expects to open between 125 to 140 stores worldwide over the balance of the year.

“We’re cautiously optimistic as you, I think, expect us to be,” Weinberg added. “It looks like some of our conservatism early on may not have been fully warranted because this quarter certainly was better than we expected. But we want to watch things a little bit further.”

The Los Angeles-based footwear brand, which reported $1.87 billion in sales for the second quarter of 2022, discussed its strategy on how to tackle each of these headwinds as it looks to keep its momentum going in order to achieve its goal of reaching $10 billion in annual sales by 2026.

“To achieve our goal, we will continue to strategically open Skechers stores, expand our digital commerce reach, enhance our DTC omnichannel capabilities through investments in our global point-of-sale systems and grow and upgrade our logistics centers to more efficiently distribute our best footwear assortment,” Skechers COO David Weinberg said on the call.

Weinberg, along with Skechers CFO John Vandemore, discussed these issues and more on Tuesday. Here are three things to know from Skechers second quarter earnings call.

A slow rebound in China

One of Skechers pain points came from persistent COVID-related lockdowns in China in the second quarter. Throughout the quarter, Weinberg noted that the company saw a decline in both stores and online in the country but have since seen some “sequential improvements” now that the majority of its Chinese stores have reopened.

Pressed further by Jay Sole of UBS, Vandemore reiterated that the company saw a fairly high degree of correlation between its results and the openness of each of the markets in which it participates.

“For a while now, we’ve also mentioned that the real driver of growth in that economy, certainly subsequent to the first occurrences of COVID has been the digital side,” Vandemore said. “And that was clearly the strongest among our three main channels in China, and that continues to be the case. I would say we have tempered our expectations for the pace of recovery in China now that we have seen that there are more restrictions and limitations reemerging.”

Skechers’ CFO went on to add that as the company was hopeful for a “relatively V-shaped recovery,” but now it looks like the recovery is going to take a little bit longer in China.

Supply chain challenges persist, but relief is on the way

On the company’s earnings call on Tuesday, Weinberg noted that the company will continue to experience supply chain challenges. “It’s certainly unavoidable in the current environment,” he declared. But, Weinberg did note that he expects shipping delays and port backups to “normalize” in the next two quarters, at least when it comes to Skechers’ business.

“For us, the question internally is how quickly we can get our new distribution center portion opened in the United States that was supposed to open earlier but got caught up in its own supply chain issues,” he added.

On the call, Weinberg noted that the company’s distribution centers are undergoing a large overhaul. “The LEED certified Gold expansion of our 2.6 million square foot North American distribution center is almost complete, and we have begun testing the new operating system,” he said. “We have seen an increased flow of goods from the port, which has put a strain on our processing and that of our accounts during the quarter.”

Elsewhere around the world, Weinberg added that phase two of its China distribution center expansion is planned to begin this year with a goal of completion in 2024. Skechers has also begun development on a new 1.1 million square foot IGBC Platinum pre-certified distribution center in India. The first phase of the facility outside Mumbai will be 660,000 square feet and is planned to be fully operational by mid-2023. “We have also secured a location outside Vancouver, Canada for a new 427,000 square foot distribution center slated to open in early 2023, and we are currently moving into a new facility in Panama,” Weinberg added.

What’s more, its current distribution facility in Colombia was expanded this year, and there are plans to develop a new facility to be completed in 2024 that will grow its capacity from 85,000 square feet to approximately 500,000 square feet.

Promotional pricing is expected

Asked by Gaby Carbone from Deutsche Bank on how consumers are reacting to price increases and the future of promotions, Vandemore noted that response has been “stable.” “Prior to this point, certainly on the retail side of things, [consumer reaction] had been very constructive from our perspective,” the CFO said. “Obviously, we’re sensitive to any price increases. So, we try to be very thoughtful about when we introduce those and under what circumstances.”

Looking ahead however, Vandemore says the company does expect some level of promotional pricing to reemerge in the back half of the year. “We don’t consider it to be significant or drastic but some level of promotionality I think is to be expected given the kind of ideal circumstances we’ve been under for the previous five or six quarters,” he added.