Business Wire | Jul 23, 2020 04:06PM EDT

Skechers Announces Second Quarter 2020 Financial Results

Jul. 23, 2020

MANHATTAN BEACH, Calif.--(BUSINESS WIRE)--Jul. 23, 2020--SKECHERS USA, Inc. (NYSE:SKX), a global footwear leader, today announced financial results for the second quarter ended June 30, 2020.

Second Quarter Results

* Sales of $729.5 million, a 42.0 percent decrease * Company-owned e-commerce sales grew 428.2 percent * China sales grew 11.5 percent * Diluted loss per share was $0.44 * Cash, cash equivalents and investments were $1.56 billion

"Skechers, like most businesses around the world, has never faced a more challenging time than during the pandemic, which caused the closing of nearly every market worldwide," stated Robert Greenberg, chief executive officer of Skechers. "COVID-19 continues to be a serious concern globally, and the health and welfare of our team, partners and customers remain our number one priority. In the face of this on-going challenge, I am extremely proud of our company. We are a resilient organization driven by a dedicated and flexible team determined to do what it takes to not only survive but position ourselves for a return to profitability. 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."

"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," began David Weinberg, chief operating officer of Skechers. "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."

Second Quarter 2020 FinancialResults

(Dollars in millions, except pershare data)

Three months ended

June 30, Change

2020 2019 $ %

Sales $ 729.5 $ 1,258.6 $ (529.1 ) -42.0 %

Gross Profit 368.6 609.8 (241.2 ) -39.6 %

Gross Margin 50.5 % 48.5 %

SG&A Expenses 432.1 505.1 (73.0 ) -14.5 %

As a % of Sales 59.2 % 40.1 %

Earnings / (loss) from (61.0 ) 111.1 (172.1 ) -154.9 %Operations

Operating Margin (8.4 ) % 8.8 %

Net Earnings / (loss) (68.1 ) 75.2 (143.3 ) -190.6 %

Diluted Earnings / (loss) per $ (0.44 ) $ 0.49 $ (0.93 ) -189.8 %Share



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.

"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," said John Vandemore, chief financial officer of Skechers. "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."

Six Months 2020 FinancialResults

(Dollars in millions,except per share data)

Six Months ended

June 30, Change

2020 2019 $ %

Sales $ 1,971.8 $ 2,535.3 $ (563.5 ) -22.2 %

Gross Profit 916.2 1,200.3 (284.1 ) -23.7 %

Gross Margin 46.5 % 47.3 %

SG&A Expenses 940.2 934.9 5.3 0.6 %

As a % of Sales 47.7 % 36.9 %

Earnings / (loss) from (16.2 ) 276.9 (293.1 ) -105.9 %Operations

Operating Margin (0.8 ) % 10.9 %

Net Earnings / (loss) (19.0 ) 183.9 (202.9 ) -110.3 %

Diluted Earnings / (loss) $ (0.12 ) $ 1.19 $ (1.31 ) -110.1 %per Share



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.

Balance Sheet

At quarter-end, cash, cash equivalents and investments totaled $1.56 billion, an increase of $524.5 million, or 50.9 percent from December 31, 2019, and an increase of $583.0 million, or 59.9 percent, over June 30, 2019. The increase primarily reflects the drawdown of $490 million from the Company's senior unsecured credit facility in the first quarter.

Total inventory, including inventory in transit, was $1.03 billion, a decrease of $42.1 million or 3.9 percent from December 31, 2019, and an increase of $172.1 million or 20.1 percent over June 30, 2019. The higher year-over-year inventory levels reflect lower wholesale shipping and decreased retail activity associated with the global pandemic.

Outlook

The Company is not providing further financial guidance at this time given the ongoing business disruption and substantial uncertainty surrounding the impact of the pandemic on its business globally.

Store Count

Number of Number of Store Store Locations as Locations as of of

March 31, 2020 Opened Closed^ June 30, 2020 (1)

Company-owned 508 3 (1 ) 510 domestic stores

Company-owned 304 4 - 308 international stores

Joint-venture stores 377 21 (8 ) 390

Distributor, licensee 2,386 81 (60 ) 2,407 and franchise stores

Total Skechers stores 3,575 109 (69 ) 3,615

(1) Does not reflect temporary closures due to the COVID-19 pandemic.

Second Quarter 2020 Conference Call

The Company will host a conference call today at 1:30 p.m. Pacific Time / 4:30 p.m. Eastern Time to discuss its second quarter 2020 financial results. The call can be accessed on the Investor Relations section of the Company's website at investors.skechers.com. For those unable to participate during the live broadcast, a replay will be available beginning July 23, 2020 at 7:30 p.m. ET, through August 6, 2020, at 11:59 p.m. ET. To access the replay, dial 844-512-2921 (U.S.) or 412-317-6671 (International) and use passcode: 13706218.

About SKECHERS USA, Inc.

Based in Manhattan Beach, California, Skechers designs, develops and markets a diverse range of lifestyle and performance footwear, apparel and accessories for men, women and children. The Company's collections are available in the United States and over 170 countries and territories via department and specialty stores, and direct to consumers through 3,615 Company- and third-party-owned retail stores and e-commerce websites. The Company manages its international business through a network of global distributors, joint venture partners in Asia, Israel and Mexico, and wholly-owned subsidiaries in Canada, Japan, India, Europe and Latin America. For more information, please visit about.skechers.com and follow us on Facebook, Instagram, Twitter, and TikTok.

Reference in this press release to "Sales" refers to Skechers' net sales reported under generally accepted accounting principles in the United States. This announcement also contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, Skechers' future domestic and international growth, financial results and operations including expected net sales and earnings, its development of new products, future demand for its products, its planned domestic and international expansion, opening of new stores and additional expenditures, and advertising and marketing initiatives. Forward-looking statements can be identified by the use of forward-looking language such as "believe," "anticipate," "expect," "estimate," "intend," "plan," "project," "will be," "will continue," "will result," "could," "may," "might," or any variations of such words with similar meanings. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in forward-looking statements. Factors that might cause or contribute to such differences include the disruption of business and operations due to the COVID-19 pandemic; international economic, political and market conditions including the challenging consumer retail markets in the United States; sustaining, managing and forecasting costs and proper inventory levels; losing any significant customers; decreased demand by industry retailers and cancellation of order commitments due to the lack of popularity of particular designs and/or categories of products; maintaining brand image and intense competition among sellers of footwear for consumers, especially in the highly competitive performance footwear market; anticipating, identifying, interpreting or forecasting changes in fashion trends, consumer demand for the products and the various market factors described above; sales levels during the spring, back-to-school and holiday selling seasons; and other factors referenced or incorporated by reference in Skechers' annual report on Form 10-K for the year ended December 31, 2019, and its quarterly report on Form 10-Q for the three-months ended March 31, 2020. More specifically, the COVID-19 pandemic has had and is currently having a significant impact on Skechers' business, financial conditions, cash flow and results of operations. Forward-looking statements with respect to the COVID-19 pandemic include, without limitation, Skechers' plans in response to this pandemic. At this time, there is significant uncertainty about the COVID-19 pandemic, including without limitation, (i) the duration and extent of the impact of the pandemic, (ii) governmental responses to the pandemic, including how such responses could impact Skechers' business and operations, as well as the operations of its contract manufacturers and other business partners, (iii) the effectiveness of Skechers' actions taken in response to these risks, and (iv) Skechers' ability to effectively and timely adjust its plans in response to the rapidly changing retail and economic environment. Taking these and other risk factors associated with COVID-19 into consideration, the dynamic nature of these circumstances means that what is stated in this press release could change at any time, and as a result, actual results could differ materially from those contemplated by such forward-looking statements. The risks included here are not exhaustive. Skechers operates in a very competitive and rapidly changing environment. New risks emerge from time to time and we cannot predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results. Moreover, reported results should not be considered an indication of future performance.

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, dollars in thousands)

June 30, December 31,

2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 1,352,120 $ 824,876

Short-term investments 105,677 112,037

Trade accounts receivable, net 478,011 645,303

Other receivables 68,104 53,932

Total receivables 546,115 699,235

Inventories 1,027,735 1,069,863

Prepaid expenses and other current assets 105,141 113,580

Total current assets 3,136,788 2,819,591

Property, plant and equipment, net 833,103 738,925

Operating lease right-of-use assets 1,102,885 1,073,660

Deferred tax assets 49,198 49,088

Long-term investments 98,236 94,589

Goodwill 93,497 71,412

Other assets, net 94,339 45,678

Total non-current assets 2,271,258 2,073,352

TOTAL ASSETS $ 5,408,046 $ 4,892,943

LIABILITIES AND EQUITY

Current liabilities:

Current installments of long-term borrowings $ 69,359 $ 66,234

Short-term borrowings 13,870 5,789

Accounts payable 621,142 764,844

Operating lease liabilities 194,508 191,129

Accrued expenses 177,907 210,235

Total current liabilities 1,076,786 1,238,231

Long-term borrowings, excluding current 680,109 49,183 installments

Long-term operating lease liabilities 1,099,798 966,011

Deferred tax liabilities 12,435 322

Other long-term liabilities 101,774 103,089

Total non-current liabilities 1,894,116 1,118,605

Total liabilities 2,970,902 2,356,836

Stockholders' equity:

Skechers U.S.A., Inc. equity 2,224,715 2,314,665

Non-controlling interests 212,429 221,442

Total stockholders' equity 2,437,144 2,536,107

TOTAL LIABILITIES AND EQUITY $ 5,408,046 $ 4,892,943

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited, dollars in thousands except per share data)

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Sales $ 729,472 $ 1,258,565 $ 1,971,817 $ 2,535,321

Cost of sales 360,906 648,730 1,055,583 1,334,977

Gross profit 368,566 609,835 916,234 1,200,344

Royalty income 2,596 6,341 7,844 11,542

371,162 616,176 924,078 1,211,886

Operating expenses:

Selling 60,240 113,507 134,295 183,721

General and 371,893 391,588 805,944 751,220 administrative

432,133 505,095 940,239 934,941

Earnings / (loss) (60,971 ) 111,081 (16,161 ) 276,945 from operations

Other income / (expense):

Interest income 1,547 3,067 3,854 6,209

Interest expense (4,804 ) (1,905 ) (6,785 ) (3,182 )

Other, net 4,704 553 8,157 (4,433 )

Total otherincome / 1,447 1,715 5,226 (1,406 )(expense)

Earnings (loss)before income tax (59,524 ) 112,796 (10,935 ) 275,539 expense

Income taxexpense / (4,307 ) 20,798 3,122 52,522 (benefit)

Net earnings / (55,217 ) 91,998 (14,057 ) 223,017 (loss)

Less: Netearningsattributable to 12,880 16,818 4,939 39,079 non-controllinginterests

Net earnings /(loss)attributable to $ (68,097 ) $ 75,180 $ (18,996 ) $ 183,938 Skechers U.S.A.,Inc.

Net earnings /(loss) per shareattributable to Skechers U.S.A.,Inc.:

Basic $ (0.44 ) $ 0.49 $ (0.12 ) $ 1.20

Diluted $ (0.44 ) $ 0.49 $ (0.12 ) $ 1.19

Weighted averageshares used incalculating netearnings / (loss) per shareattributable toSkechers U.S.A,Inc.:

Basic 154,138 153,413 153,849 153,446

Diluted 154,138 153,912 153,849 154,051

SKECHERS U.S.A., INC. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION

(Unaudited, dollars in thousands)

Three Months ended

June 30, Change

2020 2019 $ %

Sales:

Domestic wholesale $ 130,738 $ 305,307 $ (174,569) -57.2%

International wholesale 385,181 549,551 (164,370) -29.9%

Direct-to-consumer 213,553 403,707 (190,154) -47.1%

Total $ 729,472 $ 1,258,565 $ (529,093) -42.0%

Gross profit:

Domestic wholesale $ 50,426 $ 116,643 $ (66,217) -56.8%

International wholesale 180,449 249,939 (69,490) -27.8%

Direct-to-consumer 137,691 243,253 (105,562) -43.4%

Total $ 368,566 $ 609,835 $ (241,269) -39.6%

Gross margin percentage:

Domestic wholesale 38.6% 38.2%

International wholesale 46.8% 45.5%

Direct-to-consumer 64.5% 60.3%

Total gross margin 50.5% 48.5% percentage



Six Months ended

June 30, Change

2020 2019 $ %

Sales:

Domestic wholesale $ 508,700 $ 652,001 $ (143,301) -22.0%

International wholesale 960,380 1,177,619 (217,239) -18.4%

Direct-to-consumer 502,737 705,701 (202,964) -28.8%

Total $ 1,971,817 $ 2,535,321 $ (563,504) -22.2%

Gross profit:

Domestic wholesale $ 195,703 $ 243,094 $ (47,391) -19.5%

International wholesale 420,924 538,668 (117,744) -21.9%

Direct-to-consumer 299,607 418,582 (118,975) -28.4%

Total $ 916,234 $ 1,200,344 $ (284,110) -23.7%

Gross margin percentage:

Domestic wholesale 38.5% 37.3%

International wholesale 43.8% 45.7%

Direct-to-consumer 59.6% 59.3%

Total gross margin 46.5% 47.3% percentage



RECONCILIATION OF GAAP EARNINGS FINANCIAL MEASURES TO CORRESPONDING

NON-GAAP FINANCIAL MEASURES

(Unaudited, dollars in thousands except per share data)

Three months ended June 30,

2020 2019 Change

Constant Reported GAAP Currency Adjusted for Reported Measure Non-GAAP GAAP $ % Adjustment Measure Measure ^(1)

Sales $ 729,472 $ 12,904 $ 742,376 $ 1,258,565 $ (516,189 ) -41.0%

Cost of sales 360,906 7,395 368,301 648,730 (280,429 ) -43.2%

Gross profit $ 368,566 $ 5,509 $ 374,075 $ 609,835 $ (235,760 ) -38.7%

Royalty income 2,596 145 2,741 6,341 (3,600 ) -56.8%

SG&A expenses 432,133 6,652 438,785 505,095 (66,310 ) -13.1%

Earnings /(loss) from $ (60,971 ) $ (998 ) $ (61,969 ) $ 111,081 $ (173,050 ) -155.8%operations

Other income / 1,447 (5,208 ) (3,761 ) 1,715 (5,476 ) -319.3%(expense)

Income taxexpense / (4,307 ) 71 (4,236 ) 20,798 (25,034 ) -120.4%(benefit)

Less:Non-controlling 12,880 127 13,007 16,818 (3,811 ) -22.7%interests

Net earnings / $ (68,097 ) $ (6,404 ) $ (74,501 ) $ 75,180 $ (149,681 ) -199.1%(loss)

Dilutedearnings / $ (0.44 ) $ (0.04 ) $ (0.48 ) $ 0.49 $ (0.97 ) -198.0%(loss) pershare



Six months ended June 30,

2020 2019 Change

Constant Reported GAAP Currency Adjusted for Reported Measure Non-GAAP GAAP $ % Adjustment Measure Measure ^(1)

Sales $ 1,971,817 $ 32,428 $ 2,004,245 $ 2,535,321 $ (531,076 ) -20.9%

Cost of sales 1,055,583 20,201 1,075,784 1,334,977 (259,193 ) -19.4%

Gross profit $ 916,234 $ 12,227 $ 928,461 $ 1,200,344 $ (271,883 ) -22.7%

Royalty income 7,844 (150 ) 7,694 11,542 (3,848 ) -33.3%

SG&A expenses 940,239 14,504 954,743 934,941 19,802 2.1%

Earnings /(loss) from $ (16,161 ) $ (2,427 ) $ (18,588 ) $ 276,945 $ (295,533 ) -106.7%operations

Other income / 5,226 4,796 10,022 (1,406 ) 11,428 -812.8%(expense)

Income tax 3,122 298 3,420 52,522 (49,102 ) -93.5%expense

Less:Non-controlling 4,939 (411 ) 4,528 39,079 (34,551 ) -88.4%interests

Net earnings / $ (18,996 ) $ 2,482 $ (16,514 ) $ 183,938 $ (200,452 ) -109.0%(loss)

Dilutedearnings / $ (0.12 ) $ 0.02 $ (0.10 ) $ 1.19 $ (1.29 ) -108.4%(loss) pershare



Constant Currency Adjustment and Acquisition Related Charges (1)

We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of period-over-period fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the company's performance. We calculate constant currency percentages by converting our current period local currency financial results using the prior-period exchange rates and comparing these adjusted amounts to our prior period reported results.

Certain Non-GAAP Measures

We use the non-GAAP financial measures presented above to evaluate our results of operations, financial condition, liquidity and indebtedness. We believe that these non-GAAP measures provides useful information to investors regarding financial and business trends related to our results of operations, cash flows and indebtedness and that when this non-GAAP financial information is viewed with our GAAP financial information, investors are provided with valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the company's operating performance and liquidity. In addition, these non-GAAP measures address questions the company routinely receives from analysts and investors and, in order to assure that all investors have access to similar data the company has determined that it is appropriate to make this data available to all investors. None of the non-GAAP measures presented should be considered as an alternative to net income or loss, operating income, cash flows from operating activities, total indebtedness or any other measures of operating performance and financial condition, liquidity or indebtedness derived in accordance with GAAP. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Our use of these terms may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

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CONTACT: Company Contact:

CONTACT: David Weinberg Chief Operating Officer John Vandemore Chief Financial Officer SKECHERS USA, Inc. (310) 318-3100

CONTACT: Investor Relations:

CONTACT: Andrew Greenebaum Addo Investor Relations (310) 829-5400

CONTACT: Press:

CONTACT: Jennifer Clay Vice President, Corporate Communications SKECHERS USA, Inc. (310) 318-3100