Skechers(US:SKX)2019-04-18 18:10Financial Data and Key Metrics Changes - The company achieved a new quarterly sales record of $1.28 billion, a 2.1% increase over the first quarter of the previous year, with constant currency sales growth of 5.2% [6][17] - Earnings from operations increased by 11.5% to $165.9 million, with an operating margin improvement to 13% from 11.9% [7][20] - Diluted earnings per share were $0.71, down from $0.75 in the prior year [21] - Gross profit was $590.5 million, with a slight decrease in gross margin to 46.3% due to lower international margins and negative foreign exchange rates [19][20] Business Line Data and Key Metrics Changes - Domestic business decreased by 6.3%, with a 3.3% increase in direct-to-consumer sales, including a 35.3% increase in domestic e-commerce [8][18] - International sales increased by 9.3%, representing 57.8% of total sales, with a 15% growth on a constant currency basis [6][11] - Domestic wholesale gross margins remained flat, while domestic retail margins increased by 260 basis points due to improved pricing and reduced promotional activity [9][19] Market Data and Key Metrics Changes - The company maintained its position as the number one brand in several categories in the U.S. market, including walking and work shoes [9] - Internationally, significant sales growth was noted in Germany, Spain, India, and Japan, with China being the largest market with approximately 1.1 million pairs shipped [11][12] Company Strategy and Development Direction - The company is focusing on expanding its international presence, with plans to open over 400 Skechers branded stores in 2019, including 30 to 35 company-owned stores [14][15] - The conversion of the India joint venture into a subsidiary is expected to be accretive to earnings, and a new joint venture in Mexico is anticipated to drive growth [8][15] - The company aims to continue delivering relevant products with targeted marketing globally while driving profitability [8][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the domestic wholesale business remaining flat for the full year, citing positive feedback from core customers and a clean inventory position [32][34] - The company expects international and direct-to-consumer businesses to continue growing steadily, with a cautious optimism regarding the domestic retail market [72][74] - Management noted that foreign exchange rates are a significant headwind but anticipate potential benefits if trade disputes are resolved [60][63] Other Important Information - The company repurchased approximately 458,000 shares of common stock at an average price of $32.77 per share [22] - The adoption of the new lease accounting standard resulted in the recognition of a right of use asset of $970.4 million and an operating lease liability of $1.05 billion [23] Q&A Session Summary Question: Confidence in Domestic Wholesale Business - Management expressed confidence in the domestic wholesale business being flat for the year, citing positive reception to new products and a positive backlog from core customers [32][34] Question: SG&A Levels and Growth - SG&A is expected to align with top-line growth, with a focus on managing expenses effectively while supporting growth initiatives [35][37] Question: FX Impact on Gross Margin - The FX impact on gross margin was between 10 and 20 basis points, with a significant swing in balance sheet translation affecting EPS [40][41] Question: Non-Skechers Inventory Levels - Management believes that bankruptcies in the retail sector will facilitate market share gains, and current inventory levels are clean and well-managed [44][46] Question: Domestic Wholesale Business Drivers - The domestic wholesale business faced headwinds due to the Easter shift and increased discounting, but core customer performance remains positive [52][53] Question: Growth Potential in China - China continues to be a strong market, with growth rates impacted by foreign exchange, but underlying growth remains robust [60][63]