Skechers shares soar as ‘chunky sneakers’ trend drives record sales

Skechers shares soar as ‘chunky sneakers’ trend drives record sales

7 Feb    Finance News

Skechers USA Inc. reported record fourth-quarter sales, capping off a year that surpassed $5 billion at checkout, thanks in part to one trend: chunky sneakers.

It was one of a few categories that got a shout out in earnings comments from Chief Executive Robert Greenberg.

“2019 was also the year we saw the resurgence of chunky sneakers – and as an originator in this category, we became a go-to source around the world,” he said.

Chunky sneakers, or “dad sneakers,” are a trend at both the high and low price points, with Skechers SKX, +5.49%   and Balenciaga both examples of labels that have gotten in on the style.

Read: Nike’s coronavirus-related store closures in China could result in an earnings miss, analysts say

And it promises to continue into 2020, with sporty styles and comfort footwear forecast to stay on trend.

“Fashion footwear has been heavily driven by comfort, as casual styles continue to gain share at the expense of dress, and this shows no signs of slowing down,” wrote Beth Goldstein, executive director at NPD Group, in an accessories and footwear post published in January. The group’s Future of Footwear report for 2020 found that “sport leisure footwear” will become the largest shoe category.

“Dress itself will continue to become less dressy, as a wider array of styles has become acceptable at work and in more formal settings, ” Goldstein said.

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Skechers is prepared for the trend.

“At the core of our global successes is our ability to develop a vast range of footwear for active lifestyles that delivers on style, innovation, and most importantly, comfort,” said David Weinberg, chief operating officer at Skechers, on the earnings call, according to a FactSet transcript.

Other categories that contributed to the quarter were men’s, running, walking and golf shoes.

“Typically, the fourth quarter is our smallest quarter of the year,” said Weinberg. “Yet it was the second highest in our history with net sales of $1.33 billion, a 23.1% increase.”

Fourth-quarter sales topped the $1.2 billion FactSet consensus. Skechers same-store sales rose 9.9%, blowing past the FactSet outlook for 6.5% growth. And earnings per share totaled 39 cents, matching the FactSet guidance.

See: E-commerce surge sparks questions about reliability of same-store sales metric

“The Q4 2019 topline beat is evidence the Skechers brand is globally resonating with consumers,” wrote Suquehanna Financial Group analysts led by Sam Poser. “Management’s decision to invest opportunistically in marketing, both in the U.S. and overseas, drove elevated selling and distribution expenses (up 43% year-over-year) on the SG&A line, which was a drag on operating margin. That said, management indicated, and we agree, that the investments are helping sustain the momentum of the brand across the globe.”

Susquehanna rates Skechers shares positive with a $51 price target, up from $49.

Skechers is guiding for first-quarter sales of $1.400 billion to $1.425 billion, and EPS of 70 cents to 75 cents. The FactSet outlook is for sales of $1.419.7 billion and EPS of 74 cents.

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Guidance takes into account an initial estimate of the impact of current events in China, including the coronavirus. Skechers says there have been a “significant number” of store closures.

Skechers warns that the guidance could “materially change” if the situation worsens or impacts the supply chain.

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Skechers just finished construction on its first distribution center in China.

“We are planning China down for this quarter,” said John Vandemore, chief financial officer at Skechers, on the earnings call. “We’ve taken a fairly severe look at February and parts of March. How that unfolds really is to be determined. But it’s really the strength of all of our other business segments that aren’t being directly impacted by the situation right now which is powering our guidance.”

Skechers stock soared 6.2% in Friday trading, and the stock has rallied 37% over the past year through Thursday. The S&P 500 index SPX, -0.56%   is up 22.8% for the last 12 months.

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