SKECHERS USA, Inc. :SKX-US: Earnings Analysis: Q4, 2016 By the Numbers : March 8, 2017

SKECHERS USA, Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of SKECHERS USA, Inc. – Wolverine World Wide, Inc., Steven Madden, Ltd., Crocs, Inc., Deckers Outdoor Corporation, Rocky Brands, Inc. and Columbia Sportswear Company (WWW-US, SHOO-US, CROX-US, DECK-US, RCKY-US and COLM-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 764.29 million, Net Earnings of USD 6.66 million.
  • Gross margins narrowed from 44.21% to 43.73% compared to the same period last year, operating (EBITDA) margins now 5.92% from 8.46%.
  • Year-on-year change in operating cash flow of 62.47% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 764.29 942.42 877.81 978.79 722.68
Revenue Growth (%YOY) 5.76 10.07 9.66 27.45 26.85
Earnings (mil) 6.66 65.11 74.11 97.61 29.45
Earnings Growth (%YOY) -77.37 -2.24 -7.11 74.06 34.34
Net Margin (%) 0.87 6.91 8.44 9.97 4.07
EPS 0.04 0.42 0.48 0.63 0.19
Return on Equity (%) 1.59 15.95 19.18 27.17 8.72
Return on Assets (%) 1.15 11.53 13.6 18.97 5.91

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Market Share Versus Profits

Revenues History
Earnings History

SKX-US‘s change in revenue this period compared to the same period last year of 5.76% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SKX-US is holding onto its market share. Also, for comparison purposes, revenues changed by -18.90% and earnings by -89.77% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 44.21% to 43.73%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 8.46% to 5.92% in this time frame. For comparison, gross margins were 43.42% and EBITDA margins were 12.86% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

SKX-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 145.12 days, compared to last year’s level of 125.17 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

SKX-US‘s change in operating cash flow of 62.47% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 7.03% to 3.05% and (2) one-time items that contributed to a decrease in pretax margins from 7.00% to 2.90%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

SKECHERS USA, Inc. engages in design, development and marketing of lifestyle footwear that appeals to men, women and children of all ages. It operates its business through three segments: Domestic Wholesale Sales, International Wholesale Sales and Retail Sales. The Domestic Wholesale Sales segment distributes footwear through the domestic wholesale distribution channels: department stores, specialty stores, athletic specialty shoe stores and independent retailers, as well as catalog and internet retailers. The International Wholesale Sales segment products are sold throughout the world. Its product offering, diversified domestic and international distribution channels, and targeted multi-channel marketing. The company has two distinct footwear categories: a lifestyle division that includes the charity line BOBS from SKECHERS, and a fitness division that now includes SKECHERS GOrun, SKECHERS GOwalk, and SKECHERS GOplay performance footwear. The company was founded by Robert Greenberg in 1992 and is headquartered in Manhattan Beach, CA.

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