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Higher Overseas Investments Drove Skechers’s 1Q18 Costs Higher

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Dec. 4 2020, Updated 10:42 a.m. ET

Skechers beat 1Q18 bottom-line expectations

Skechers’s (SKX) 1Q18 (first quarter of 2018) adjusted earnings improved 25% YoY (year-over-year) to 75 cents per share. The company outperformed Thomson Reuters consensus expectations by one cent.

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Gross margin improves while SG&A costs surge

Skechers’s gross profit improved 22% YoY to $583 million during the first quarter. Gross margin increased 230 basis points to 46.7% of sales driven by strength in the company’s international retail businesses and an increase in contribution from international subsidiaries.

SG&A expenses, however, recorded a surge during the quarter and increased 24% YoY. This increase was driven by a higher general and administrative expense rate, which soared 210 basis points to 28.4% of sales due mainly to rising costs associated with international investments and new store openings.

Selling expenses also increased 14% YoY to $84.4 million, primarily driven by higher international advertising expenses. However, there was a ten-basis-point decline in the selling expense rate, which stood at 6.8% of sales during the quarter.

Despite the rise in expenses, Skechers’s operating margin improved 30 basis points to 11.9% of sales as operating income jumped 20% to $149 million. However, the management noted that the operating leverage was below expectations, as it incurred higher-than-anticipated overseas distribution costs during the quarter.

ETF investors seeking to add exposure to SKX can consider the iShares Morningstar Small-Cap ETF (JKJ), which invests ~0.7% of its portfolio in the company.

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