After $2B Quarter, Skechers Is Cautious on Wholesale as DTC Shows Big Gains

After achieving a record $2 billion in sales during the first quarter, Skechers shares were up nearly 6 percent in mid-day trading,

David Weinberg, EVP, COO and director at Skechers, told analysts on the company’s earnings call Thursday night that its second quarter guidance incorporates all the challenges it has seen in the domestic wholesale side.

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“Domestic wholesale is the largest headwind we’re facing,” Weinberg noted. “There was a little bit of Q2 [merchandise] that ended up shipping a little bit earlier, which impacted Q1 [sales]. It’s not an extraordinary amount, but it is an amount that came out of Q2 into Q1.”

Indeed, the Los Angeles-based footwear company reported on Thursday that its domestic wholesale business was down 18 percent in the first quarter, mainly related to inventory congestion issues impacting many of its retail partners.

Weinberg said he anticipates Skechers domestic wholesale segment to get worse in Q2, citing a slowdown in orders for the quarter. “While we’re hopeful that we’ll start to see a turn in that soon, the reality is what we can bank on at the moment is that this headwind will continue,” he said.

But the rest of Skechers’ wholesale business saw gains. In fact, the footwear brand saw 3.5 percent growth in wholesale overall. “Wholesale remains a critical element of our growth strategy, representing 65 percent of our total sales for the quarter,” Weinberg said on Thursday’s call. “The 3.5 percent year-over-year sales increase was driven by 20 percent growth in our international wholesale business, where nearly every market achieved double-digit growth.”

Skechers’ direct-to-consumer business was the star of the quarter, however, with the brand reporting an increase of 24.5 percent in its overall direct-to-consumer business in Q1. Domestic direct-to-consumer sales increased 25 percent due to double-digit growth in both its brick-and-mortar and e-commerce channels, while international direct-to-consumer sales grew 24 percent due to double-digit increases in nearly every market and even triple digit in some. In China, direct-to-consumer grew due to the return of consumers to a brick-and-mortar shopping experience, the highest gains came from Hong Kong, South Korea, Chile, Thailand and Canada.

“We remain focused on growing our direct-to-consumer segment to efficiently drive sales and connect with our loyal consumers,” Weinberg said.

This comes as the brand continues to open its own stores, debuting 56 company-owned Skechers stores and closing 25 in the first quarter. The company ended the quarter with 4,549 Skechers stores worldwide, of which 3,074 were third-party stores, including 108 opened in the first quarter, 71 of which were in China, 15 in India and our first store in Tajikistan. In the second quarter to date, Skechers has opened one company-owned store in the United States and expects to open between 125 to 140 stores worldwide over the balance of the year.

“We’re cautiously optimistic as you, I think, expect us to be,” Weinberg added. “It looks like some of our conservatism early on may not have been fully warranted because this quarter certainly was better than we expected. But we want to watch things a little bit further.”

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