Business Overview and History
Skechers USA, Inc. (SKX) is a global footwear company that has built a reputation for delivering comfortable, stylish, and innovative products to consumers worldwide. Despite facing various macroeconomic challenges, the company has demonstrated its resilience and adaptability, solidifying its position as a leading player in the footwear industry.
Skechers was founded in 1992 in Manhattan Beach, California, with a focus on creating a lifestyle brand centered on comfort, style, and quality. Over the past three decades, the company has evolved and expanded its product offerings, diversifying into performance footwear, apparel, and accessories.
In the early years, Skechers established itself as a leading lifestyle brand, developing a loyal customer base with its comfortable and stylish footwear. The company faced challenges in the late 1990s and early 2000s as it navigated a highly competitive footwear industry, but was able to maintain its brand recognition through comprehensive marketing campaigns and innovations in product design.
In the 2000s, Skechers began expanding its distribution globally, opening retail stores in international markets and establishing joint ventures and licensing agreements to grow its presence worldwide. This global expansion helped the company weather the economic downturn in the late 2000s, as growth in international markets offset softness in the domestic U.S. market.
Over the past decade, Skechers has further diversified its product portfolio, adding performance and athletic footwear lines to complement its core lifestyle offerings. The company has invested heavily in research and development to drive innovation in comfort technologies, which have been well-received by consumers. Skechers has also focused on enhancing its direct-to-consumer capabilities, expanding its e-commerce presence and opening new company-owned retail locations globally.
In 2024, Skechers achieved a significant milestone, celebrating its 25th year as a publicly traded company on the New York Stock Exchange. During this time, the company has grown its global footprint, with a presence in approximately 180 countries and territories. Skechers' success can be attributed to its commitment to innovation, its ability to adapt to changing consumer preferences, and its focus on delivering high-quality products at an affordable price point.
Financial Performance and Ratios
Skechers' financial performance has been solid, with the company reporting record sales of $8.97 billion in 2024, representing a 12.1% increase from the previous year. This growth was driven by strong performance across both its Wholesale and Direct-to-Consumer segments, as well as robust international sales.
For the fiscal year ended December 31, 2024, Skechers reported annual net income of $639.47 million, annual operating cash flow of $687.39 million, and annual free cash flow of $270.60 million. In the most recent quarter ended December 31, 2024, the company reported quarterly revenue of $2.21 billion and quarterly net income of $99.33 million. Revenue increased 13% year-over-year, driven by strength across both the wholesale and direct-to-consumer segments, as well as growth in domestic and international markets. Net income increased 16% year-over-year, despite headwinds from unfavorable foreign currency exchange rates.
The company's gross margin improved to 53.2% in 2024, up from 51.9% in the prior year, demonstrating its ability to maintain profitability. Skechers also achieved a double-digit operating margin of 10.1% in 2024, highlighting its operational efficiency.
Liquidity
In terms of liquidity, Skechers ended 2024 with $1.12 billion in cash and cash equivalents, providing ample financial flexibility to fund its growth initiatives. The company's current ratio, a measure of short-term liquidity, stood at 1.97 as of the end of 2024, indicating a strong ability to meet its short-term obligations. The quick ratio was 1.12, further supporting the company's strong liquidity position.
Solvency Measures and Capital Structure
Skechers' balance sheet remains healthy, with a debt-to-equity ratio of 0.45 as of December 31, 2024. This relatively low level of leverage suggests that the company has a solid capital structure, allowing it to navigate economic uncertainties more effectively.
The company's interest coverage ratio, a measure of its ability to meet its interest payments, was 42.5 in 2024, indicating a robust capacity to service its debt obligations. Additionally, Skechers' cash flow from operations of $687.4 million in 2024 demonstrates its ability to generate sufficient cash to fund its operations and growth initiatives.
Skechers had $745.40 million in available borrowing capacity under its corporate revolving credit facility, with an additional $250 million available through an accordion feature, further enhancing its financial flexibility.
Segment Performance
Skechers operates in two reportable segments: Wholesale and Direct-to-Consumer.
The Wholesale segment comprises sales to a network of partners, including Skechers-branded stores operated by third-party franchisees and licensees, family shoe stores, specialty athletic and sporting goods retailers, department stores, big box club stores, e-commerce retailers, and distributors in select international markets. Wholesale sales increased 13.2% to $5.10 billion in 2024, driven by increases across the Americas, Europe, Middle East and Africa, and Asia Pacific regions. Volume increased 13.7% in the number of units sold, while average selling price per unit decreased 0.4%. Wholesale gross margin increased 230 basis points to 43.3%, primarily due to lower costs per unit driven by lower freight expenses.
The Direct-to-Consumer segment includes sales by the company directly to consumers through a combination of company-owned Skechers-branded stores, company-owned e-commerce sites, and leading third-party marketplaces and digital platforms. Direct-to-Consumer sales increased 10.7% to $3.87 billion in 2024, with increases in Europe, Middle East and Africa, the Americas, and Asia Pacific. Volume increased 11.2% in the number of units sold, while average selling price per unit decreased 0.5%. Direct-to-Consumer gross margin increased 20 basis points to 66.2% due to favorable channel mix and lower costs per unit, partially offset by a decrease in average selling prices.
Geographic Performance
Skechers has a global presence, with sales in approximately 180 countries and territories. In the fourth quarter of 2024, the Americas region saw a 14% increase in sales, Europe, Middle East and Africa (EMEA) grew 25%, and Asia Pacific (APAC) increased 3.3%. China remains a challenging market, with sales declining 11% in the quarter. Excluding China, APAC sales grew 26%.
Navigating Global Headwinds
Despite Skechers' strong financial performance, the company has acknowledged facing several headwinds and uncertainties as it enters 2025. These include unfavorable foreign currency exchange rates, the implementation of global minimum tax regulations, and ongoing macroeconomic challenges in China.
The company's guidance for 2025 reflects these factors, with sales expected to be in the range of $9.7 billion to $9.8 billion and earnings per share projected to be between $4.30 and $4.50. Management has indicated that the impact of foreign currency exchange rates and tax-related changes could result in a headwind of approximately 200 basis points to the company's organic sales growth rate and a potential increase in its effective tax rate to 22-23%.
For the first quarter of 2025, Skechers expects sales in the range of $2.4 billion to $2.425 billion and net earnings per share in the range of $1.10 to $1.15.
Skechers' Response and Strategies
To address these challenges, Skechers is taking proactive measures to mitigate the impact on its operations. The company plans to utilize various tactics, including redirecting manufacturing relationships, negotiating with vendors, and potentially adjusting pricing, to navigate the tariff situation and foreign currency fluctuations.
Additionally, Skechers is focused on strengthening its product innovation, with continued investment in its comfort technology offerings and the expansion of its performance footwear categories, such as basketball, soccer, and cricket. The company is also committed to enhancing its distribution network and direct-to-consumer capabilities to improve efficiency and reach.
Skechers anticipates capital expenditures to be between $600 million and $700 million for 2025, as it continues to invest in distribution center expansions and the further expansion of its North America distribution center.
Industry Trends
The footwear industry has seen steady growth, with a compound annual growth rate (CAGR) of approximately 5-6% over the past several years. Skechers has outperformed the industry, growing revenue at a 12.1% rate in 2024. The company's focus on comfort technology, diverse product offerings, and global diversification have been key to its success.
Conclusion
Skechers has demonstrated its ability to navigate challenging market conditions and deliver consistent financial performance. Despite the headwinds it faces in 2025, the company's strong brand recognition, innovative product pipeline, and diversified global presence position it well to continue its growth trajectory. As Skechers navigates these uncertainties, investors will closely monitor the company's ability to adapt and capitalize on emerging opportunities in the ever-evolving footwear industry.