Investors should have expected Skechers (NYSE: SKX) was going to post another big miss, but the big 16% drop in its stock after hours following its third-quarter earnings report indicates they were shocked — shocked! — the footwear maker stumbled so hard.
All year long and across all of its markets, Skechers’ numbers have been falling sharply, and that trend continued this quarter too. The domestic wholesale business, which accounts for 60% of its revenues, saw sales drop 3.4%, though its international wholesale business was up more than 18%.
Although investors might have expected those global sales to ameliorate the declines here at home, even if they are a somewhat smaller part of the total, the problem is even the international business is slowing dramatically. A year ago, Skechers’ international wholesale business was growing at a better than 50% clip, meaning it’s decelerated by two-thirds.
While Skechers surpassed Adidas last year to become the second-largest footwear company in the U.S., behind Nike, it was still far behind the industry leader, with just a 5% market share compared to its rival’s 62%. Now, with Skechers’ domestic and international growth rapidly unraveling, it’s clear the sneaker company is fading fast.
Skechers said net sales were up 10% year over year to $942 million generating net earnings of $65 million, or $0.42 per share, a 2.2% drop from the year ago period, when it earned $66.6 million, or $0.43 per share, on revenues of $856 million.
Investors could have seen this coming, and could have gotten out before the latest hit to Skechers stock price. Its growth rates fell sharply in last year’s third quarter, when domestic wholesale sales rose just 11.8% compared to an 18.5% increase in 2014 to — a 36% deceleration. That was followed in the fourth quarter by a massive 64% drop in the rate of growth; sales growth tumbled to just 8% from 24% in the prior year period.
The company has just continued in that fashion across each quarter of 2016, so the market only has itself to blame for being so surprised that sales growth finally turned negative this time around.
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Rich Duprey has no position in any stocks mentioned.
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