Skechers USA Inc. (SKX - Analyst Report) continued its superb financial run in the third quarter of 2014 as both top and bottom lines topped the Zacks Consensus Estimate and increased year over year. However, shares slumped 7.3% on the index as the investors’ seemed disappointed by a sizeable negative impact from foreign exchange fluctuations to the earnings per share and a deceleration in revenue growth rate.

Adjusted earnings per share of $1.07 topped the Zacks Consensus Estimate of 91 cents while rising substantially year over year. Including one-time items and foreign exchange impact, earnings per share were $1, compared with 53 cents earned in the prior-year quarter.
 

Skechers U S A , Inc - Earnings Surprise | FindTheBest

Aggressive marketing initiatives, product innovation across multiple categories and healthy performance across all revenue channels led to a 30.7% rise in revenues to $674.3 million in the quarter, which surpassed the Zacks Consensus Estimate of $618 million. However, this growth rate was quite lower from the 37.1% registered in the second quarter of 2014.

With increased focus on the new line of products, cost containment, inventory management, a global distribution platform and sturdy backlogs, the company remains confident of sustaining the growth momentum in 2014 and carry on with it in 2015. Based on initial backlogs data for first-quarter 2015, the company expects revenues to grow 15—20%.

Gross profit for the quarter soared 32.1% to $304.5 million, while gross margin increased 50 basis points (bps) to 45.2%. The growth was primarily driven by increased sales and a favorable product mix.

Operating income for the quarter increased 68.3% to $74.1 million, while as a percentage of sales it improved 250 bps to 11%.

Segmental Sales Synopsis for Q3

The domestic wholesale business marked a revenue increase of 18.5%, reflecting a jump of 16.1% in pairs shipped and an increase of 1.2% in average price per pair.

Skechers’ international business revenue increased 60.6% on the back of a 52.2% rise in international subsidiary and joint venture (JV) sales, as well as an improvement of 87.3% in distributor sales. Impact of tough macroeconomic conditions in several key markets on Skechers’ international distributor business was offset by growth in Europe.

Retail global business sales grew 25% and comparable-store sales jumped 11%.

Store Update

Skechers had 432 company-owned retail stores and 537 distributor, JV and licensed stores under operation at the end of third-quarter 2014. At the quarter-end, the company’s JV and licensed stores comprised 152 outlets under JVs in Asia including stores operated by licensees, 357 distributor-owned or licensed Skechers retail stores globally and 28 company-licensed locations in Brazil, Canada, Spain, France, Portugal and Ireland.

During the third quarter, the company opened 22 stores, including 14 domestic stores and 8 international outlets. These comprise of new concept stores in Arizona, California, Hawaii, Kentucky, New York, Nevada, North Carolina, Louisiana, Massachusetts, Minnesota and Texas, as well as outlets in Canada, Chile, Spain, and the U.K. Further, the company closed 3 domestic concept stores in the quarter.

So far, in the fourth quarter of 2014, Skechers has opened 5 outlets, one each in Nevada and New York and 3 in Canada. Going forward, the company plans to open 10–15 retail stores during rest of the quarter.

During the second quarter, Skechers opened 32 distributor, JV or licensed stores, 3 each in Australia China and Mexico, two each in Malaysia, Saudi Arabia, South Africa and Turkey and one each in Peru, the UAE, Brunei, Hong Kong, Thailand, France, India and Portugal, Lebanon, Jordan, South Korea, Indonesia, Taiwan. Moreover, 3 licenses outlets were converted into company owned stores in the quarter.

So far, in the fourth quarter of 2014, Skechers has opened 11 third-party stores. Going forward, the company plans to open about 40-50 more stores in 2014.

Strategic Initiatives

Management is focused on innovative products, opening additional Skechers stores and increasing distribution channels with the development of international distribution agreements to boost sales and profitability. Moreover, Skechers’ international business remains a significant sales growth driver for the company. Also, through its distribution networks, subsidiaries and JVs, Skechers is poised to enhance its global reach in the footwear market.

Other Financial Aspects

This Zacks Rank #1 (Strong Buy) stock, which competes with Deckers Outdoor Corp. (DECK - Analyst Report) and Nike Inc. (NKE - Analyst Report), ended third-quarter 2014 with cash and cash equivalents of $440.8 million, long-term debt of $107.2 million and shareholders’ equity of $1,050.7 million, excluding non-controlling interest of $55.7 million. Capital expenditures for the quarter were approximately $18 million.

Other Stock to Consider

Another stock worth considering in the shoe space is Brown Shoe Co. Inc. (BWS- Snapshot Report), which also sports a Zacks Rank #1.