After Skechers (SKX, Financial) warned on September 19 about declining sales in China due to consumer spending pressures, expectations for its Q3 2024 earnings report were lowered. Despite a 5.7% drop in China sales, SKX experienced strong performance across other markets, leading to a Q3 revenue growth of 16.0%, up from 7.3% last quarter.
- SKX's success is driven by innovative and competitively priced products, outperforming brands like adidas (ADDYY, Financial) and NIKE (NKE, Financial). Products such as hands-free slip-ins, Skechers Arch Fit, and Skechers Air-cooled memory foam are gaining popularity. SKX and competitor Deckers (DECK, Financial) are capturing market share from NKE, which is undergoing a CEO transition.
- International sales were a highlight, rising by 16% despite China's weakness. In Europe, SKX overcame supply chain issues to meet strong demand, achieving 30% growth in the EMEA region with double-digit growth in all countries.
- Domestic performance improved as well. SKX reported better foot traffic at U.S. brick-and-mortar stores, supporting stable retail sales. The eCommerce channel continued to grow, resulting in a 3.7% increase in domestic DTC sales, building on last year's 14% rise.
- SKX's wholesale business saw significant growth, with revenue up by 20.6% due to increased shelf space at wholesale customers. The company anticipates strong wholesale results in Q4, including the crucial holiday shopping season.
- However, SKX's Q4 EPS guidance of $0.70-$0.75 fell short of expectations. In Q3, gross margin decreased by 80 bps year-over-year to 52.1% due to lower average selling prices, indicating increased promotional activity to boost sales.
The main takeaway is that, except for China, SKX's business is thriving, with new product innovations appealing to consumers. While SKX fills the innovation gap left by NKE, it is also using lower prices to drive sales, as indicated by its lower EPS guidance.
