Q4 2024 Earnings Summary
- Skechers achieved substantial growth of almost $900 million without any growth in China, demonstrating a diversified and resilient business model not dependent on any one geography.
- The company is successfully managing external challenges such as tariffs by leveraging its core competencies in production relocation and pricing strategies, ensuring profitability despite uncertainties.
- Strong performance across global markets excluding China, with continued strength in EMEA, the Americas, and Asia-Pacific (excluding China) indicates the organic nature of the business is performing exceptionally well.
- Weakness in China is a significant concern, as sales declined 11% in the fourth quarter, and the business deteriorated more than expected. Management noted that China continues to face a challenging macroeconomic environment, and sales are expected to remain flat or decline in 2025. This weakness could negatively impact overall growth prospects. , , , ,
- Foreign exchange headwinds are impacting earnings, with unfavorable currency exchange rates contributing to a $0.21 hit to fourth-quarter EPS and expected to impact 2025 EPS by approximately $0.15 to $0.20. The strengthening of the U.S. dollar is a significant factor beyond the company's control and could continue to pressure earnings. ,
- Implementation of global minimum tax regulations is expected to increase the effective tax rate, naturally pushing it up and potentially reducing net earnings. Management indicated that this tax change will likely become a new base rate, impacting profitability moving forward. ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +12.8% | In Q4 2024, total revenue jumped to $2,212.5 million, up 12.8% YoY, driven by continued expansion in product mix and pricing improvements that were already evident in previous periods. This reflects ongoing strength in both the wholesale and DTC channels, building on the positive momentum seen in earlier quarters. |
Wholesale Revenue | +17.4% | Wholesale revenue increased by 17.4% YoY to $1,130.7 million, bolstered by strong regional gains—especially in the Americas and EMEA that were highlighted in Q3 2024—and by improved volume dynamics that continued to build from prior period recoveries. These gains reflect enhanced market demand and recovery of channel capacity. |
Direct-to-Consumer Revenue | +8.3% | DTC revenue grew by 8.3% YoY to $1,081.8 million, supported by robust consumer demand and omnichannel improvements noted previously, though at a slightly moderated pace compared to Q3’s 9.6% increase. The growth was underpinned by geographic diversification and targeted marketing initiatives that sustained DTC momentum. |
Earnings from Operations | +27% | Earnings from operations surged by approximately 27% YoY to $165,504 thousand driven by improved gross margins and effective cost management measures that built on earlier operational efficiencies. The impact of higher average prices and a favorable channel mix, which had begun to show positive results in prior periods, contributed significantly. |
Net Cash Provided by Operating Activities | –25.5% | Net cash from operations declined by about 25.5% YoY to $232,672 thousand, primarily due to adverse changes in working capital—such as increased receivables and shifts in inventory management—that offset gains from improved net earnings, reflecting a continuation of volatility in cash flow management observed in earlier quarters. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales | FY 2025 | no prior guidance | $9.7 billion to $9.8 billion | no prior guidance |
EPS | FY 2025 | no prior guidance | $4.30 to $4.50 | no prior guidance |
Effective tax rate | FY 2025 | no prior guidance | 22% to 23% | no prior guidance |
Capital expenditures | FY 2025 | no prior guidance | $600 million to $700 million | no prior guidance |
Minority interest | FY 2025 | no prior guidance | Expected decline by mid‐teens percentage | no prior guidance |
Sales | Q1 2025 | no prior guidance | $2.4 billion to $2.425 billion | no prior guidance |
Net EPS | Q1 2025 | no prior guidance | $1.10 to $1.15 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
China Market Performance | Q1 showed cautious optimism with strong growth (13% increase) ; Q2 remained cautiously optimistic with modest growth (3.4% on a constant currency basis) ; Q3 reflected weakness and uncertainty with a 5.7% YoY decline | Q4 reported a sharper downturn with an 11% decline in China sales, citing macroeconomic challenges and underperformance after key events | Sentiment shifted from initial optimism to increasing near‐term weakness, though long‑term recovery is still anticipated |
Global Market Diversification | Q1 highlighted robust growth across EMEA, Asia Pacific (excluding China) and Americas with strong direct-to-consumer performance ; Q2 and Q3 repeatedly emphasized the strength of geographic diversification and double-digit growth in key regions | Q4 reinforced robust performance outside China with strong sales in regions such as EMEA, Americas, and Asia-Pacific (excluding China) | Consistently positive, with unwavering confidence in a diversified global portfolio offsetting China’s challenges |
Gross Margin Pressures and Declining ASP | Q1 emphasized gross margin expansion with improved mix and lower freight costs ; Q2 and Q3 noted pressures from increased promotional activities and slightly lower ASPs, with margins impacted by freight and discount cadence | Q4 detailed gross margin pressures from freight costs and foreign exchange headwinds, along with continued mild ASP declines due to broader pricing strategies | Downward pressure has increased over time as heightened promotions and external costs erode margins compared to earlier optimism |
Rising Operating Expenses and Elevated SG&A Spending | Q1 showed higher SG&A spending offset by improved operating margins ; Q2 reported significant expense increases (operating expenses up by 340 bps) driven by marketing and higher labor costs ; Q3 indicated continued elevated spending with some efficiency gains in G&A | Q4 disclosed elevated SG&A spending impacting profitability with plans for deleverage in early 2025, despite partial cost offset improvements | Recurring concern with consistent elevated expenses; management is actively adjusting but near‑term impact remains |
Foreign Exchange Headwinds | Q1 mentioned a slight negative impact on EPS ($0.04 reduction on constant currency) ; Q2 experienced FX as an acute headwind affecting EPS and sales guidance ; Q3 provided no specific mention on FX challenges | Q4 saw material FX headwinds with a $0.21 EPS hit due to a stronger U.S. dollar, marking a significant negative impact | Increasing negative impact across the periods, with the severity growing significantly by Q4 |
Tariff and Regulatory Challenges | Q1 had minimal mention; Q2 discussed tariff risks linked to a 40–45% China sourcing and regulatory hurdles in India ; Q3 highlighted adjustments in sourcing strategies in India without a strong tariff focus | Q4 provided a detailed overview on tariff mitigation, including production relocation, vendor negotiations, and pricing adjustments, while also addressing macroeconomic issues in China | Growing emphasis on managing tariffs and regulatory risks as external pressures increase, with more concrete strategies emerging in Q4 |
Expansion into New Product Categories | Q1 mentioned initial forays into sports categories via partnerships and early athlete endorsements ; Q2 launched new football (soccer) and basketball products with global campaigns and high-profile athlete signings ; Q3 described these initiatives as in the early stages with targeted athlete partnerships | Q4 continued to expand these categories, introducing Elite Academy lines and cricket offerings globally while maintaining early-stage momentum in basketball and soccer | Consistent expansion with progressive scaling and increased athlete involvement, though still measured in ramp-up |
Global Minimum Tax Regulations | Not mentioned in Q1–Q3 | Q4 introduced discussion on global minimum tax, noting a current effective tax rate reduction in Q4 and projecting a rise to 22–23% in 2025 as a result of these regulations | New topic emerging in Q4 with potentially significant long‑term financial impact |
Temporary Supply Chain Disruptions | Q1 referenced regulatory delays in India and some short‑term freight issues with stabilized rates ; Q2 detailed the Suez Canal crisis affecting European shipments and regulatory delays in India ; Q3 mentioned supply chain hiccups in Europe and noted regulatory delays in India | Q4 discussed continued disruptions with the Suez Canal crisis causing longer transit times in Europe and acknowledged ongoing regulatory delays in India | Recurring issue with consistent challenges over time, though management measures show incremental improvements; remains a key near‑term risk |
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China Sales Impact
Q: How did China revenue perform and what's the outlook?
A: China was a drag this quarter, down about 11%. Excluding China, international markets were robust. They're not counting on significant growth from China this year but are working to move inventory quicker and spur demand through marketing efforts, especially around comfort technologies. -
Margin Outlook
Q: What's the gross and operating margin outlook for FY '25?
A: They expect gross margins to remain stable without a material change overall. The focus is on sustaining the recently achieved double-digit operating margin. While there may be pressures from FX and China, the goal is to guide to flat operating margins. -
FX Impact on Earnings
Q: How is foreign exchange affecting earnings and guidance?
A: FX had a significant impact, with a $0.21 hit in Q4. They expect a headwind of $0.15 to $0.20 going forward due to currency movements. The strengthening U.S. dollar affected them beyond expectations. -
CapEx Spending
Q: Why is CapEx high at $700 million, and how long will it stay elevated?
A: CapEx is elevated due to two major projects: expanding the China distribution center and building additional storage capacity in the U.S.. These are once-in-a-decade investments. Excluding these, CapEx would be more normalized. -
Tariff Mitigation Strategies
Q: How will you mitigate the impact of new tariffs?
A: They plan to apply previous strategies, such as redirecting manufacturing origins, working with vendors, and adjusting prices. They've managed tariffs successfully before and believe they can navigate this situation effectively. -
Global Minimum Tax Impact
Q: How does the new global minimum tax affect you?
A: The global minimum tax pushes up their tax rate, likely becoming a base rate of at least 15%. They've been tax-efficient historically but expect increased tax expenses due to this new regime. -
Inventory Levels
Q: What's the status of inventory levels relative to sales growth?
A: Inventory levels are healthy, with increases mainly due to merchandise in transit, especially in Europe. On-hand inventory was up 12%, aligning with their 13% sales growth. They've proactively built up inventory to meet strong first-quarter demand. -
Demand Creation Spend
Q: Are you increasing marketing spend, and why?
A: They're stepping up marketing in the first and second quarters to keep products at the forefront amid global uneasiness. This includes reinforcing their position in China and promoting new products and advertising. -
U.S. Wholesale Growth Outlook
Q: What's the outlook for U.S. wholesale growth?
A: After nearly 20% growth last year, they expect to return to mid-single-digit growth for U.S. wholesale in FY '25. There are opportunities to outperform, but replicating last year's exceptional growth is unlikely.
Research analysts covering SKECHERS USA.