Skechers (SKX) is set to declare its results for the second quarter after the markets close on July 18. It expects its second-quarter sales to be in the range of $1.20 billion–$1.225 billion compared to $1.13 billion in the second quarter of 2018. The company expects to report EPS in the range of $0.30–$0.35 compared to $0.29 in the second quarter last year.

Analysts expect Skechers’s second-quarter sales to rise 7.4% to $1.22 billion. Analysts expect the company’s adjusted EPS to fall 5.6% to $0.34 in the second quarter due to growth investments.

Dismal first-quarter performance

Skechers stock fell 10.4% on April 18 after the company reported lower-than-expected sales and EPS for the first quarter. Skechers’s first-quarter sales rose 2.1% to $1.28 billion and missed analysts’ forecast of $1.30 billion. Excluding the impact of adverse currency movements, its sales rose 5.2%.

The footwear maker’s first-quarter sales growth marked its slowest growth rate since the second quarter of 2012. Weakness in the Domestic Wholesale segment negatively impacted the company’s performance.

Sales in Skechers’s Domestic Wholesale segment fell 10.9% to $346.7 million. A drop in volumes and lower sales in the off-price channel dragged on the segment’s sales.

Skechers expects weakness in its Domestic Wholesale segment to continue in the second quarter. It expects the segment’s second-quarter sales to fall in the mid-single-digit range. Analysts expect the segment’s sales to be flat on a full-year basis.

Sales in Skechers’s International Wholesale segment rose 8.7% to $628.1 million in the first quarter. The Retail segment’s sales rose 6.7% to $302 million driven by an additional net 40 stores and same-store sales growth of 1.4%.

Skechers’s first-quarter adjusted EPS fell 5.3% to $0.71, lower than analysts’ consensus estimate of $0.72. The company’s adjusted EPS fell year-over-year as its higher revenue was offset by increased expenses to support its additional retail stores and its growing international wholesale business. Higher taxes also hit Skechers’s bottom line.

What to Expect from Skechers’s Q2 Results

Skechers’s growth strategy

Skechers expects its international business to be a key driver of its future growth. International business accounted for about 58% of the company’s overall sales in the first quarter. Skechers expects growth in the mid-teens in its international business this year.

Skechers is rapidly expanding its retail presence both in the domestic and international markets through company-owned stores as well as third-party stores. At the end of the first quarter, Skechers’s retail network comprised over 3,060 company-owned stores and third-party retail stores.

To capture the strong growth prospects in the Indian market, Skechers converted its joint venture in the country to a wholly owned subsidiary. The company’s business in India grew 46% in the first quarter. Skechers also established an e-commerce platform in India to further enhance its sales.

In April, Skechers finalized a joint venture agreement with its distribution partner in Mexico, another key growth avenue for the company. China continues to be the largest country in Skechers’s international portfolio. The company has an extensive store network and a rapidly growing online business in China.

Skechers is also trying to improve its top line growth through continued innovation and focused marketing efforts.

Analysts’ ratings and valuation

On Monday, Skechers stock was rated as a “buy” by seven out of 12 analysts. The remaining five had “hold” ratings. As of Monday, the 12-month price target for Skechers stock was $34.70, which implied an upside potential of 1%.

Skechers stock was up 49.7% YTD (year-to-date) on Monday. In comparison, Nike, Under Armour, and Columbia Sportswear were up 20.7%, 55.7%, and 21.5%, respectively, YTD. Skechers and its peers were ahead of the S&P 500, which was up 20.2% YTD on Monday.

On Monday, Skechers was trading at a 12-month forward PE ratio of 15.7x. Analysts expect Skechers’s sales to rise 7.7% to about $5.0 billion in 2019 driven by continued strength in its international business and the expansion of its retail store network. They expect Skechers’s adjusted EPS to rise 6.8% to $2.05 this year.

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