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Shareholders of footwear company Skechers (NYSE: SKX) have had a rough year so far. While the stock market has been grinding higher until recently, shares of Skechers have plummeted more than 30% year to date. Two not-so-great quarterly reports, featuring slowing revenue growth and rising costs, have spooked investors.
Skechers will have an opportunity to erase some of those losses when it reports its third-quarter results after the market closes on Thursday, Oct. 18. The company's weak guidance for the third quarter helped trigger a big sell-off in July, so Skechers will likely need to handily beat expectations for the stock to move higher.
Image source: Skechers.
What happened last time
Skechers' second-quarter results were marred by an unexpected earnings decline. Operating expenses increased far faster than revenue, knocking down the bottom line.
| Metric | Q2 2018 | Change (YOY) | Compared to Average Analyst Estimate |
|---|---|---|---|
| Revenue | $1.13 billion | 10.6% | In-line |
| Earnings per share | $0.29 | (23.7%) | Missed by $0.12 |
Data source: Skechers.
Skechers' revenue growth was driven by the international wholesale business, which produced a 24.9% sales increase in the second quarter. That growth was offset by a 7% sales decline in the domestic wholesale business and a 6.1% sales decline in the international distributor business.
Selling, general, and administrative expenses soared 19.7% year over year, nearly doubling the revenue growth rate. Skechers attributed this expense growth to its efforts to build its international business and its direct-to-consumer channels. Those higher costs, along with legal expenses and adverse foreign exchange impacts, led to the earnings miss.
What analysts are expecting
Analysts expect similar revenue growth in the third quarter, along with a less severe earnings decline:
| Metric | Average Analyst Estimate | Change (YOY) |
|---|---|---|
| Revenue | $1.22 billion | 11.6% |
| Earnings per share | $0.52 | (11.9%) |
Data source: Yahoo! Finance.
Skechers' third-quarter guidance calls for revenue between $1.200 billion and $1.225 billion and earnings per share between $0.50 and $0.55. The company expects both the domestic wholesale business and the international distributor business to grow during the second half of the year.
Skechers received some analyst downgrades following its second-quarter earnings disaster. Wells Fargo and Susquehanna slashed their $40 price targets to $24 and $26, respectively. In September, analysts at Cowen downgraded the stock to "market perform," citing slowing sales growth and an inventory buildup.