10-29-2016, 02:25 AM
Q3 adjusted EPS was affected by one-off factors. The bottom line was affected by a higher tax rate that stood at 24.2% in Q3 2016 vs. 17.7% a year ago and 18.9% average for the last eight quarters. Also, there was the negative currency impact on International sales of $15.9mn. The U.K. shipped more than 1.2m pairs, a 20% increase y/y, but $ sales grew only 11% due to the weaker pound. Even if we strip off just the FX effect, EPS would have been $0.46, flat year-over-year and in line with the Street. The company's outlook is not that grim as it seems at the first glance. Management guided $710-735mn revenue in Q4 2016 with the midpoint of $722.5mn approximately 10% below the ex-ante consensus estimate, and implying no year-over-year revenue growth. A dip in year-over-year sales growth can be explained by the ongoing transition of several international distributors to a JV model. Revenues are recognized at the moment of shipment from factories for distributors and at the moment of the ultimate sale to consumers for JVs.
Given that Q4 is typically the strongest for distributors, while Q1 is stronger for international JVs and subsidiaries, this transition will result in that some part of Q4 2016 revenues probably will be transferred to Q1 2017. Israel was transitioned into a JV in Q3 2016, and SKX currently is in the final stages of South Korea moving to a JV as well. That implies that a weak Q4 revenue guidance is just a bump and international growth story is intact.
Why Skechers's Q3 Results Were Not So Bad - Skechers USA Inc. (NYSE:SKX) | Seeking Alpha