Skechers USA, Inc., a global footwear leader, announced financial results for the second quarter ended 30th June, 2020.
“Now, with more than 90 percent of our Skechers stores safely re-opened and some markets in the early stages of recovery, we believe that we will remain a brand consumers and retailers trust to deliver comfort, quality, and style. We are hopeful that global economies will continue to improve, and as they do, we will continue to operate efficiently and judiciously during this pandemic,” stated Robert Greenberg, Chief Executive Officer of Skechers.
“The impact of COVID-19 to Skechers’ business was significant in the second quarter as we saw much of the world outside Asia shutter nearly all businesses. However, we remain optimistic about the early signs of recovery we witnessed during the quarter, including a return to growth in China, consistent improvement each month in some markets outside of China, and record shattering growth of over 400 percent in our company-owned e-commerce business. While every country’s recovery has been unique, we began to see a similar recovery trend, first reflected in China and now extending into other markets globally including Australia, Germany, South Korea and Taiwan. We believe the positive sales trends in markets that have re-opened, as well as the efficiency with which we addressed the pandemic challenges, are strong indicators that when the global health crisis stabilizes, Skechers will remain a global footwear leader,” began David Weinberg, Chief Operating Officer of Skechers.
Sales decreased 42.0 percent as a result of a 37.8 percent decrease in its international business and a 47.3 percent decrease in the company’s domestic business, reflecting the impact of the global pandemic. The company’s international sales declines were partially offset by an 11.5 percent increase in China sales. The company’s international wholesale business decreased 29.9 percent and its domestic wholesale business decreased 57.2 percent. With nearly all its Skechers stores closed at some point in the quarter, its direct-to-consumer business decreased 47.1 percent, which includes a 428.2 percent increase in its e-commerce business. Comparable same store sales in its direct-to-consumer business decreased 45.6 percent, including a decrease of 35.9 percent in the United States and 66.9 percent internationally.
Gross margins increased by approximately 210 basis points as a result of a favorable mix of online and international sales.
SG&A expenses decreased $73.0 million, or 14.5 percent in the quarter. Selling expenses decreased by $53.3 million, or 46.9 percent, primarily due to lower advertising and marketing expenses globally. General and administrative expenses decreased by $19.7 million, or 5.0 percent, despite the inclusion of an incremental $10.2 million in bad debt expense, due predominately to the impact of COVID-19 on wholesale customers across the globe. The decrease was primarily the result of a reduction in compensation related expenses due to the temporary closure of its retail stores and the furlough of select corporate staff.
Earnings (loss) from operations decreased $172.1 million, or 154.9 percent, to a loss of $61.0 million.
Net loss was $68.1 million and diluted loss per share was $0.44.
In the second quarter, the company’s effective income tax rate was 7.2 percent, resulting in a net tax benefit of $4.3 million.
For the first six months, sales decreased 22.2 percent, reflecting the impact of the global pandemic on our businesses worldwide.
Gross margins decreased slightly due to lower international gross margins, including the impact of a one-time, non-cash purchase price adjustment related to the acquisition of the company’s interest in the Mexico joint venture in 2019 of $8.0 million.
For the first six months, SG&A expenses increased by 0.6 percent or $5.3 million. Selling expenses decreased by 26.9 percent or $49.4 million, primarily due to lower advertising and marketing expenses globally. General and administrative expenses increased by 7.3 percent or $54.7 million, reflecting the inclusion of Mexico operations and a net increase in new company-owned Skechers stores.
Earnings (loss) from operations decreased $293.1 million, or 105.9 percent, to a loss of $16.2 million. Net loss was $19.0 million and diluted loss per share was $0.12.
“Despite the challenges of the second quarter, we are optimistic about the early-stage recovery we are seeing in much of our business, including a return to growth in China and the explosive growth of our e-commerce channel. We ended the second quarter in a position of significant financial strength, having grown our cash balances sequentially by more than $175 million through prudent inventory, working capital and operating expense management. We remain confident in our ability to manage through this crisis and are extremely optimistic about the long-term future of the Skechers brand,” said John Vandemore, Chief Financial Officer of Skechers.