Skechers: A Look at Its 4Q17 Performance

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Part 4
Skechers: A Look at Its 4Q17 Performance PART 4 OF 5

Higher Sales and Cost Control Drove Skechers’s 4Q17 Bottom Line

4Q17 bottom-line beat

Skechers’s (SKX) 4Q17 adjusted EPS (earnings per share) soared to $0.21, driven by solid revenue growth. SKX outperformed Wall Street’s average expectations of $0.13 and management’s guidance of $0.09–$0.14. Its EPS was $0.04 in 4Q16.

Higher Sales and Cost Control Drove Skechers&#8217;s 4Q17 Bottom Line

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Here’s why Skechers’s margins improved in 4Q17

While Skechers’s sales grew a solid 40%, the company also managed to keep its costs under check.

Its gross profit grew 27.5% to $454.1 million in 4Q17, while its gross margin expanded 20 basis points to 46.8% of sales. That improvement was driven by strength in the company’s international retail business and an increase in the contribution from its international subsidiaries.

Operating income was $55.7 million, almost double what it recorded in 4Q16. Its operating margin grew 200 basis points to 5.7%. Selling expenses were 6.6% of sales compared to 7.8% of sales in 4Q16. General and administrative expenses were 35.1% of sales compared to 35.8% in 4Q16.

This is the first time in the last seven quarters that SKX has recorded an increase in its operating margin. It has seen a deterioration in margins recently, driven by rising costs associated with international investments and higher advertising expenses overseas.

Looking forward

Skechers’s management expects net sales in 1Q18 to be $1.18 billion–$1.2 billion, reflecting an increase of 10.7% year-over-year at the midpoint.

EPS is projected to be $0.70–$0.75, a 21% growth at the midpoint.

Skechers’s strong results and upbeat guidance have driven SKX stock higher. We’ll look at that more in the next part.

ETF investors seeking to add exposure to SKX can consider the iShares Morningstar Small-Cap (JKJ), which invests 0.9% of its portfolio in the company.


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