skx-10q_20190630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-14429

SKECHERS U.S.A., INC.

(Exact name of registrant as specified in its charter)

Delaware

95-4376145

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

228 Manhattan Beach Blvd.

Manhattan Beach, California

90266

(Address of Principal Executive Office)

(Zip Code)

(310) 318-3100

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol		Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share		SKX		New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2019, 133,750,580 shares of the registrant’s Class A Common Stock, $0.001 par value per share, were outstanding.

As of July 31, 2019, 23,015,771 shares of the registrant’s Class B Common Stock, $0.001 par value per share, were outstanding.

SKECHERS U.S.A., INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Earnings	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	Signatures	43

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par values)

	June 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	779,281		$	872,237
Short-term investments		104,271			100,029
Trade accounts receivable, less allowances of $25,253 in 2019 and $25,616 in 2018		641,431			501,913
Other receivables		44,768			55,683
Total receivables		686,199			557,596
Inventories		855,627			863,260
Prepaid expenses and other current assets		67,165			79,018
Total current assets		2,492,543			2,472,140
Property, plant and equipment, net		683,254			585,457
Operating lease right-of-use assets		996,774			—
Deferred tax assets		52,510			39,431
Long-term investments		89,486			93,745
Other assets, net		106,669			37,482
Total non-current assets		1,928,693			756,115
TOTAL ASSETS	$	4,421,236		$	3,228,255
LIABILITIES AND EQUITY
Current liabilities:
Current installments of long-term borrowings	$	3,986		$	1,666
Short-term borrowings		9,998			7,222
Accounts payable		640,170			679,553
Operating lease liabilities		170,899			—
Accrued expenses		169,520			161,781
Total current liabilities		994,573			850,222
Long-term borrowings, excluding current installments		100,024			88,119
Long-term operating lease liabilities		904,205			—
Deferred tax liabilities		442			451
Other long-term liabilities		98,319			100,188
Total non-current liabilities		1,102,990			188,758
Total liabilities		2,097,563			1,038,980
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding		—			—
Class A common stock, $0.001 par value; 500,000 shares authorized; 130,275 and 129,525 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		130			129
Class B common stock, $0.001 par value; 75,000 shares authorized; 23,016 and 23,983 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		23			24
Additional paid-in capital		282,822			375,017
Accumulated other comprehensive loss		(25,282	)		(31,488	)
Retained earnings		1,875,214			1,691,276
Skechers U.S.A., Inc. equity		2,132,907			2,034,958
Non-controlling interests		190,766			154,317
Total stockholders' equity		2,323,673			2,189,275
TOTAL LIABILITIES AND EQUITY	$	4,421,236		$	3,228,255

See accompanying notes to unaudited condensed consolidated financial statements.

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net sales	$	1,258,565		$	1,134,797		$	2,535,321		$	2,384,875
Cost of sales		648,730			573,840			1,334,977			1,240,815
Gross profit		609,835			560,957			1,200,344			1,144,060
Royalty income		6,341			5,350			11,542			10,872
		616,176			566,307			1,211,886			1,154,932
Operating expenses:
Selling		113,507			114,022			183,721			198,468
General and administrative		391,588			370,927			751,220			726,308
		505,095			484,949			934,941			924,776
Earnings from operations		111,081			81,358			276,945			230,156
Other income (expense):
Interest income		3,067			2,518			6,209			3,273
Interest expense		(1,905	)		(1,464	)		(3,182	)		(2,542	)
Other, net		553			(7,473	)		(4,433	)		(4,070	)
Total other income (expense)		1,715			(6,419	)		(1,406	)		(3,339	)
Earnings before income tax expense		112,796			74,939			275,539			226,817
Income tax expense		20,798			14,080			52,522			28,700
Net earnings		91,998			60,859			223,017			198,117
Less: Net earnings attributable to non-controlling interests		16,818			15,575			39,079			35,181
Net earnings attributable to Skechers U.S.A., Inc.	$	75,180		$	45,284		$	183,938		$	162,936
Net earnings per share attributable to Skechers U.S.A., Inc.:
Basic	$	0.49		$	0.29		$	1.20		$	1.04
Diluted	$	0.49		$	0.29		$	1.19		$	1.04
Weighted average shares used in calculating net earnings per share attributable to Skechers U.S.A, Inc.:
Basic		153,413			156,518			153,446			156,476
Diluted		153,912			157,091			154,051			157,366

See accompanying notes to unaudited condensed consolidated financial statements.

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Net earnings	$	91,998	$	60,859		$	223,017	$	198,117
Other comprehensive income, net of tax:
Gain (loss) on foreign currency translation adjustment		2,905		(20,209	)		6,357		(14,875	)
Comprehensive income		94,903		40,650			229,374		183,242
Less: Comprehensive income attributable to non-controlling interests		15,483		8,452			39,230		30,897
Comprehensive income attributable to Skechers U.S.A., Inc.	$	79,420	$	32,198		$	190,144	$	152,345

See accompanying notes to unaudited condensed consolidated financial statements.

SKECHERS U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

	SHARES					AMOUNT								ACCUMULATED
	CLASS A			CLASS B		CLASS A			CLASS B		ADDITIONAL			OTHER					SKECHERS			NON			TOTAL
	COMMON			COMMON		COMMON			COMMON		PAID-IN			COMPREHENSIVE			RETAINED		U.S.A., INC.			CONTROLLING			STOCKHOLDERS'
	STOCK			STOCK		STOCK			STOCK		CAPITAL			INCOME (LOSS)			EARNINGS		EQUITY			INTERESTS			EQUITY
Balance at March 31, 2019		130,242			23,016		130			23		291,867			(29,522	)		1,800,034		2,062,532			172,986			2,235,518
Net earnings		—			—		—			—		—			—			75,180		75,180			16,818			91,998
Foreign currency translation adjustment		—			—		—			—		—			4,240			—		4,240			(1,335	)		2,905
Contribution from noncontrolling interest of consolidated entity		—			—		—			—		—			—			—		—			22,776			22,776
Distribution to noncontrolling interest of consolidated entity		—			—		—			—		—			—			—		—			(20,479	)		(20,479	)
Stock compensation expense		—			—		—			—		10,555			—			—		10,555			—			10,555
Proceeds from issuance of common stock under the employee stock purchase plan		134			—		—			—		3,177			—			—		3,177			—			3,177
Shares issued under the Incentive Award Plan		658			—		1			—		(1	)		—			—		—			—			—
Shares redeemed for employee tax withholdings		(248	)		—		—			—		(7,767	)		—			—		(7,767	)		—			(7,767	)
Repurchases of common stock		(511	)		—		(1	)		—		(15,009	)		—			—		(15,010	)		—			(15,010	)
Balance at June 30, 2019		130,275			23,016	$	130		$	23	$	282,822		$	(25,282	)	$	1,875,214	$	2,132,907		$	190,766		$	2,323,673

Balance at March 31, 2018		132,415			24,163	$	132		$	24	$	450,377		$	(12,250	)	$	1,507,887	$	1,946,170		$	137,155		$	2,083,325
Net earnings		—			—		—			—		—			—			45,284		45,284			15,575			60,859
Foreign currency translation adjustment		—			—		—			—		—			(13,085	)		—		(13,085	)		(7,124	)		(20,209	)
Distribution to noncontrolling interest of consolidated entity		—			—		—			—		—			—			—		—			(3,228	)		(3,228	)
Stock compensation expense		—			—		—			—		7,289			—			—		7,289			—			7,289
Proceeds from issuance of common stock under the employee stock purchase plan		116			—		—			—