Home Fashion Industry Financial Skechers: Strong future growth potential (NYSE: SKX)

Skechers: Strong future growth potential (NYSE: SKX)


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Skechers (NYSE: SKX) is a California-based footwear company founded in 1992. Although it provides a range of apparel and accessories, the company is best known for its footwear, which varies in style and use. The company has partnered with big brands and sports names to not only make it a household name, but one that has already left an impact on the industry.

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Skechers recently released its annual figures for 2021, with the latest quarter breaking records and highlighting some important trends, including how the company is managing its balance sheet. Given market conditions, as well as the ability to deliver what’s hot today, Skechers’ fundamentals tell investors to be optimistic about the company’s prospects.

Financial analysis

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Skechers released its quarterly and annual results with a focus on how sales looked in the second year of the pandemic. The fourth quarter alone saw sales worth $1.65 billion, up from $1.558 billion in the previous quarter, and an even more substantial improvement from the $1.324 billion reported in the last quarter of 2020. The increase in revenue is the direct result of an increase in the international wholesale and direct-to-consumer, both of which appreciated 30% during this period. The domestic wholesale division also grew in the fourth quarter, generating net income of $402 million, more than the previous three quarters combined. While domestic sales increased 9.8% in the fourth quarter, international sales dominated the latter part of the year, with a 34% increase resulting from the resolution of supply chain issues from the company throughout the year. Overall, Skechers posted a 24.5% increase in sales across all divisions, making it the best quarter ever for the company. That home stretch proved crucial as the company closed the year with total revenue of $6.31 billion, compared to $4.613 billion reported at the end of 2020, an appreciation of 36.7% over 12 months.

Strong global spending demand drove selling expenses up 44.5%, or $141.5 million, while operating expenses rose 21.9% over the same period. However, while the latter saw an increase of $454.1 million, operating expenses improved by 40.2% as a percentage of sales. So, although the company had to invest more in accelerating production and distribution, it was able to manage this well, generating more profits. As a result, net profit grew to $741.503 million in 2021, which is astonishing considering the $98.564 million reported in 2020. Despite all the challenges in supply chain management, this still represented more double the $346.560 million reported in 2019, before the pandemic. hit.

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Earnings per share in the fourth quarter were lower than the previous three, at a reported $0.43, but still, exceeded estimates by $0.33 and capped off a strong year overall with a surprise 30.3%. In line with the company’s goals of maximizing earnings while meeting growing demand, Skechers expects to see EPS of $0.70 to $0.75 in the first quarter of 2022. This is expected to come as the company is targeting a year of sales of more than $7 billion, facilitated through one of the company’s three thriving divisions.

Company and Industry Profile

Fashion Market Revenue

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The global fashion market has grown steadily over the years, undeterred by global pandemics and global shipping issues, which have only stunted its growth instead of causing an overall decline. In fact, the market went from $526 billion in 2019 to $759.5 billion by the end of 2021, growing by $233.5 billion as the world saw negative growth in various other industries. The global fashion market is expected to grow at a compound annual growth rate of 7.18% by 2025, which is expected to surpass the $1 trillion mark. Clothing has historically contributed the vast majority of market size, followed by footwear and accessories. The largest market is China, with annual revenue of $284.3 billion in 2020, more than double that recorded in the United States in the same year, at $126.5 billion this year- the. Employing a large and mostly affordable workforce, China’s industry shows no signs of slowing down and is expected to top $368.8 billion in 2024 as it continues to dominate high-end and low-end fashion production. .

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While China leads in terms of revenue, the West still has a monopoly on fashion trends and styles, which is enough not to exclude the American and European markets. E-commerce sales are growing rapidly in the United States as evidenced by its performance in the region. In 2019, the average revenue per user (ARPU) in the United States surpassed that of China, with the former reporting an ARPU of $432, compared to $296 in China. The market is expected to reach an ARPU of $532 in 2024, with China still lagging at around $310, followed as usual by Europe. Last year saw a 9% growth in the online fashion industry in the United States alone. While the industry was always destined to grow, if not by pure parallel with population growth, the industry’s online presence has dramatically accelerated growth. The online market share is still only about 22% of the global fashion chain share. It has grown steadily over the years and is expected to increase by one percentage point through 2023.

The footwear market, which Skechers primarily focuses on, had annual sales of $92.5 billion in the United States. After experiencing a slight decline in 2020, this particular sector is expected to exceed $100 billion in 2023. The company is also involved in the production of garments, which recorded a total annual revenue of $369.6 billion. in the United States and is expected to approach $400 billion. score by 2023.

Future products and projects

Skechers USA is known for shoes designed for all ages and genders. The company has three segments, dividing the company based on their specific consumer target locations, as well as the different methods by which the company can supply its footwear. Its domestic wholesale segment supplies several retailers in the United States. The International Wholesale does the same for its international customers, as its name suggests, working with its subsidiaries and joint ventures. Finally, the Direct-to-Consumer segment provides solutions through primarily Internet-based outlets. Apart from footwear, the company also provides apparel and accessories, all of which add to the company’s growing inventory.

When it comes to the ties between the fashion industry and technology, a merger in one form or another would prove to be very lucrative, given that both industries are booming. Skechers thought of the obvious, and in March 2022 the company announced plans to move to the Metaverse. This move went through a agreement with Decentraland, a virtual world based in the Metaverse, and saw the company lead the way. The metaverse concept is still new to many people, as such much less marketable, but that was no reason to deter Skechers from investing in what will inevitably be a growing market. The metaverse market is expected to reach $758.6 billion in 2026, growing rapidly to make it one of the most valuable markets. By taking such bold steps, Skechers has shown a keen eye for identifying future trends and ensuring the company’s longevity.

Future prospects

Skechers continues to expand its business where there is demand. As evidenced by its remarkable recovery in the fourth quarter and an overall fiscal year that exceeded expectations, there appears to be no slowing down as the business continues to move forward. Along with its expansion into the metaverse, the company also recently announced new operations in the Philippines, move from a third-party distributor to cement its place in the region. Ongoing offers, such as being named the official shoes of the US Open Pickleball Championships, will see the company grow revenue on all fronts. Overall, if Skechers can satisfy investors with returns like those seen in 2021, the forward march will always parallel its overwhelmingly positive outlook as it continues to move forward in the industry.