My notes on SKX

Here are my notes on Skechers, which is a new stock I’ve taken a position in.


Skechers SKX

May 2014 – Reitmeister recommendation
Skechers (SKX) – These shares are scorching hot after a monster 85% earnings beat. Simply stated, this is a thriving brand as evidenced by massive sales gains. Even the order backlog grew by 35% which speaks well to the demand ahead. And as opposed to the past, management is getting better at cost containment even in the face of growth. Add it all up and this is the right stock at the right time.

May 2014 - Shares have been volatile since coming on board, especially after the surprise announcement that they may be a bidder for the LA Clippers. The real story is the momentum of their brand as seen by a 39% increase in athletic shoe sales in April and 72% gain for walking shoes. Those are EYE POPPING numbers and will make it hard for this stock to stay down in the face of such strong fundamentals. Today’s +3.5% is a nice reflection of those improving trends. We should see more positive follow through ahead.

Skechers (SKX): Sales channel checks for May show that growth continues to be amazingly good. Sales were up 14.6% year over year. One analyst notes trends continue to be positive and expects 2nd half earnings estimates to see hefty positive revisions. This explains the further acceleration of these shares. However, I suspect $50 will prove stiff resistance. We will seek to trim some profits up in that neck of the woods.

Skechers: Just read a strong research report saying that given recent sales strength that they are experimenting with higher prices. Early signs show no flinching from consumers which should translate into fatter profit margins and higher EPS. With that shares added another +2.8% to a new closing high.

Skechers (SKX): Shares put in an impressive +3.8% showing today thanks to Citi initiating SKX with a Buy rating and $49 target. The analyst focused on a more diverse business than the past. Meaning not a 1 trick pony on just 1 style of shoe. Also they are showing improved retail relationships which is getting them in more stores and more favorable treatment in those stores. The move on heavy volume should start to put $40 in the rear view mirror as we speed up to new heights.

Skechers (SKX): As the rumors about potentially buying the Clippers fades and the focus returns to their improving business trends, the clarity emerges as to why this stock rose another +2.5% to another new high. Lots more of those kind of days on the way.

April 2014 – Announced Mar quarter results

• Net Sales of $546.5 million, up 21.0 percent
• Earnings from Operations of $48.2 million
• Diluted Earnings per share of 61 cents

Net Sales were $546.5 million up 21% from $451.6 million.

Gross Margin was 44.0% of net sales, up from 42.7%.

Earnings from Operations were $48.2 million up from $15.3 million.

(Due to Easter falling later in Spring, we shifted a portion of our advertising expenses into the second quarter, reducing our media expenses in this quarter.

Net earnings were $31.0 million up from $6.7 million.

Net earnings per share were 61 cents, based on 50.8 million shares, up from 13 cents, based on 50.5 million shares. They moved a bunch of advertising from this quarter into the second quarter because of a late Easter. I therefore am adjusting earnings downward by reducing them 4 cents this quarter to 57 cents and will add 4 cents to next quarter earnings. I also added 8 cents to last years first quarter as they had 8 cents worth of odd one-time expenses.

They have $329 million in Cash or about $6.48 per share. Long term debt is $113 million.

Our effective tax rate for the first quarter of 2014 was 25.7%. We currently estimate our effective tax rate for 2014 to be 25 to 28%.

“The demand for Skechers footwear from both our customers and consumers has been above and beyond our expectations. The result was a first quarter record as well as the second highest quarterly revenues in the company’s 22-year history. The improvements were achieved despite Easter falling late in April and the extreme cold weather experienced in most of the United States during the quarter.

The sales results are attributable to double-digit increases in our domestic and international wholesale business, as well as increases in our worldwide company-owned retail business, which achieved a 5.6 percent comparable quarter net sales increase. With multiple product success stories in our lifestyle, performance and kids’ footwear, the positive reaction to our current products resulted in a gross margin of 44.0 percent and an operating margin of 8.8 percent.”

The combination of the simultaneous success of multiple product categories in the United States and the broad global acceptance of these same initiatives allowed us to expand our assortment of styles and create a unified product message around the world. We believe this is because we’re on target for current trends with the most relevant and exciting footwear offering in the company’s history, including our Spring 2014 collection, which we began to deliver in February. The record first quarter sales are evidence that our product initiatives are working and our on-going efforts to elevate our product offering with fresh innovative footwear styles is resonating with consumers. The innovation has also lead to remarkable accomplishments in our Skechers Performance Division with two editorial awards in the first quarter for our Skechers GO running footwear, and yesterday’s incredible Boston Marathon win for elite runner and Olympian Meb, who achieved a personal best in Skechers GOmeb Speed 3 at the event.

In addition, print ads are running in magazines and on billboards and kiosks, and we have a strong online and in-store marketing presence. We are advertising around the world, further creating global synergy between product and marketing. We have seen the benefits of leveraging the strength of our brand, product and marketing across international markets as first quarter sales achieved double-digits growth in Europe, Canada, Asia, including China, and many other regions, and the demand for our brand remains strong globally. We are also looking forward to introducing our innovative Back-to-School line.

"April has started off very strong in terms of order rates, revenues and backlogs, all which have accelerated since year end. We believe this positive trend will continue through the rest of the year, as the demand for our key product initiatives in the United States, Asia, Europe, the Middle East and South America remains very high.

We believe we are well positioned to maintain this growth with the combination of $329.4 million in cash, an additional 50 to 60 company-owned SKECHERS stores opening later this year in addition to the 10 opened in the first quarter, and more in-line product deliveries throughout 2014.

Though we believe there may be some upside with the second quarter sales numbers, we remain comfortable with the analysts’ consensus earnings estimates currently reported for the quarter even with the shift of media expenses previously discussed.”

From the CC
The sales gain was a result of double-digit increases in our domestic and international wholesale businesses as well as our company-owned retail stores, which included a 5.6% same store increase. These improvements came in spite of the unusually cold weather experienced by much of the United States throughout the quarter and Easter falling in late April.
First quarter sales and financial highlights include

  • 20.7% increase in our domestic wholesale business with a 14.8% increase in pairs shipped,

  • 26.3% increase in our international business,

  • 15.9% increase in our company-owned retail business, which included an additional 46 new stores opened in the last year 10 of which were opened in the first quarter.

  • Earnings from operations of $48.2 million or 8.8% net sales,

  • Gross Margin of 44%,

  • Net Earnings of $31 million

  • Diluted earnings per share of 61 cents,

  • In line inventories, which decreased 12.8% from year end and were up 23% from the year ago,

  • strong balance sheet with $329.4 million in cash or about $6.48 per share.

We are planning on expanding our company on retail operations with another 50 to 60 stores worldwide. Our international distributors, joint ventures and licensees plan to open another 80 and 90 stores this year bringing our total projected store count at by year-end to about 1,070.

June 6 - Cramer’s Article
It’s tough to come in and buy a stock that’s up 40% for the year, especially one that’s in the boom-bust business of apparel.
But I think you have to take a hard look at Skechers. This company is not only back from a real tough Federal Trade Commission investigation involving health claims for one of its sneaker designs, but it has the most momentum in the footwear business.

When you have a company that’s growing by leaps and bounds and can’t keep the inventory on the shelves, and doesn’t have any promotional pressures, you know it is going to be difficult to value that company. How do you put a price on the stock of the only company in the industry that is systematically raising prices of its product?

Yet that’s precisely what Skechers is doing with its multiple lines of shoes. This is particularly so for its children’s shoes, known for their wild colors and lights, and the fashion-accessory shoes – the ones worn by women to work out.

Plus, you have a performance-shoe business, courtesy of its brilliant tie-up with Meb, the winner of the 2014 Boston Marathon. You have to like the advertising tie-ins with Mark Cuban, Joe Montana and, in the fall, Joe Namath, because they are red-hot for the baby boomer cohort with the relaxed-fit line.

Now, here’s the issue. Sneakers have been boom-bust for ages, with only one exception: Nike. Skechers had its own boom and bust with the FTC investigation of the Shape-ups line. How do you know it won’t happen again? I think the answer, after my visit to their showrooms in Manhattan, is that this company has so many different divisions and so many different kinds of shoes that it is finally insulated from the ups and downs of this business.

I also think there are enough larger companies out there that might need to buy Skechers in order to grow, and here I am thinking about Adidas, for instance. Given that Skechers is only a $2.5 billion company, I think that’s certainly a possibility.

Yep, I think you can win two ways with this one. It has the most momentum in the group. It has exploding earnings. And it has the best franchise you can buy for $2.5 billion in the apparel industry today.


Here are my notes on Skechers, which is a new stock I’ve taken a position in.


Skechers SKX

I had also just bought them as well last Monday… 2 pairs as I tend to walk every morning and every evening. They were about half the price of my previous Asics so will see if they last at least half as long.

Now will consider the stock…

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