SKX conference call corporate speak

Investment Analysis Clubs Saul’s Investing Discussions
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Friends,

Monkey just finished listening to the Sketchers conference call

http://skx.com/investor/

and he’s somewhat, umm, perplexed. Here are a few reasons why:

  1. He had both Netflix and Chipotle in his noggin’ as examples of clarity. Here are the problems. Here’s what we’re doing to solve them. Here’s what our competition is doing. Here’s what we’re worried about. Here’s what we’re not worried about. Clear and easy to understand.

  2. During the sketchers call, conversely, there were phrases like “domestic market is suffering from an uneasy political climate and a surplus of inventory and we’ll see about ‘back to school’.” Sounds to monkey like “we sold fewer shoes and we don’t know why.” The language was highly corporate and euphemistic and that is severely worrisome. Did anyone else have the same impression? Hopefully Monkey’s just hungry.

  3. If 2 actually does mean “we’re selling less shoes here in America” then the Sketchers story becomes entirely about its international growth. Which would be fine, except if there’s not genuine reason given for the decline in the US, why can’t the same kind of decline happen everywhere else? Monkey is really confused about the lack of clarity about the US market basically. Whatever happened to “but they’re so cheap and comfortable and everybody needs shoes” argument? How does the ‘political climate’ even begin to affect the investment thesis?

  4. And then there’s the whole quarter to quarter lumpiness–we sold a lot more in this quarter because it was pushed into it; we sold a lot less that quarter because things were pulled from it. Why this dance? It feels like it’s creating a puzzle where none really exist. You sell shoes. Did you sell more or less than before? And if quarter to quarter results are unreliable by nature, then zoom out and talk about half year to half year or year over year. Monkey’s head hurts. They’re shoes. Maybe that’s the thing: if y’all just swung from the branches and used your toes to do most things, we wouldn’t even be having this conversation.

  5. So: for what still feel like amorphous reasons, Monkey’s tummy feels a bit unsettled after listening to that call. The Suits weren’t overtly obfuscating, but there was enough, ummm, corporate speak in there that felt unnecessary which suggests maybe the business is not as strong now as it was in the earlier innings? Or maybe not. Maybe the US slowdown is a blip and the international expansion will continue to be massive and the current p/e will prove a real value. Monkey just doesn’t like to feel swindled into thinking the lesser is actually the greater.

Saul: your thoughts? Did you have the same dis-ease?

Anyone else listen? Any rejoinders?

Monkey
(long SKX but not long on shoes)

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http://www.investors.com/news/cold-brew-starbucks-q3-revenue…

Starbucks specified the same corporate speak going so far that economic and political uncertainty slowdown has affected many brands but is an anomaly.

Tinker

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I’m missing something.

Certainly, international sales are a bright spot up almost 35% for international JV & subsidiaries and over 40% for international company owned stores. International for the first six months is 45% of total revenue. Domestic sales slipped 5.4% for the quarter.

So, why am I confused? Unlike Monkey, I thought management gave decent answers as to the domestic slowdown. I gleaned a more competitive quarter due to customer closings and higher competitor’s inventory in the market causing discounting. Their prices stayed flat. So if UA and Nike were selling at close to SKX prices, a slight slowdown makes sense.

And again, their international business was on fire.

I must be missing something as I’d expect EPS to be holding up better. Sales increased 9.7%, but earnings fell 7.1%.

Guidance for next quarter is $950 to $975M. Management was asked about EPS guidance. They recommended using a 5 to 10% increase versus last year. Let’s use 10%. That would mean 47 cents for next quarter from a 43 cent basis. The analysts noted last year should have been 49 cents except for the one time legal expenses.

So! Next quarter they forecast $950 versus a year ago of $856, yet they are forecasting an earnings decrease! What gives and what am I missing?

Thanks for any help.

Take care,
A.J.

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And again, their international business was on fire.
Pun intended? Good one.

I must be missing something as I’d expect EPS to be holding up better. Sales increased 9.7%, but earnings fell 7.1%.

Yeh I don’t get it either. We’ve had the inventory problem before but this is really backsliding now.

Ant

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Hi Monkey, It seemed like a bunch of corporate-speak to me too, for what it’s worth.
Saul

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This happens every time that I buy a low PE stock. Boom! Every time. The market is forward looking and huge profits a made based upon beating forward expectations. Those expectations are part of the stock valuation.

Skechers has lacked predictability, which Wall Street hates. That will produce a lower multiple. Nike consistently meets and beats expectations, as the market leader and therefore the higher multiple. Under Armour the same. Skechers is well run, going in the right direction, but does not have the brand power backed up by consistent product that speaks of the brand to the customer to enable it to more smoothly meet or beat expectations predictably. That can still happen. Nike was not built overnight, although it seems sometimes that under Armour was.

3 year then frame is in order. Skechers will grow its product, and with it its brand to the point to ncreeate real sustainable market power or it won’t. This quarter looks like an “it won’t”, which really means it is not there yet, if ever there it will get.

No doubt though Sketchers has come a long way during the last 3 years. Skechers is one of many branded companies citing the exact same political and economic uncertainty, from blue jeans, to coffee, to shoes. One analyst specified that slowing domestic demand is the leading indicator for soon to slow international demand.

At some point this too shall pass. I am more interested in watching market share changes and in measuring the growth of Skechers brand as it relates to customer mindset. Those are the things that will create long term investor value, and lack thereof to create stagnation.

Tinker

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Skechers will grow its product, and with it its brand to the point to ncreeate real sustainable market power or it won’t. This quarter looks like an “it won’t”, which really means it is not there yet, if ever there it will get.

Classic.

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On the one hand I think it’s good that you’re nailing them on “politics” as an excuse.

On the other hand, I just wonder if what they’re trying to say is that because of recent mass shootings, racial tensions, and fears related to global terrorism, people are going to stay home more and spend less on shoes.

That might be a fair worry to be concerned with.

I was surprised that my ticker, Papa John’s (PZZA) was upgraded by an analyst on the theory that people are going to feel more safe staying home and, ordering pizza!

I know that many folks buy shoes online but it is possible that the average mall shopper or store shopper stays home, consiously or unconsciously because of shootings, terrorism, political demonstrations, etc.

I don’t think it’s as superficial as saying – it’s an election year! Although if people are concerned about their money and their jobs and economic decline, it might be a little bit of that too.

What’s that, consumer confidence?

Monkey, I am bananas for your posts. Keep up the good work!

Karen
ticker guide AMTD/PZZA
no position in SKX (I am considering it) and long PZZA

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http://marketrealist.com/2016/06/skechers-footwear-design-so…

Here is a detailed essay on Sketcher’s business. One thing to note is that domestic retail and online have by far e highest margins for Sketcher’s.

Domestic sales were growing at 26% per annum, but now down to 10%, albeit international growing even faster but margins will be lower. Given the higher margins in retail and online distribution, and with such domestic sales down, you can see how margins declined despite sales increasing as international became a larger portion of sales.

Reading through many of these issues (and I have not read through and analyzed it any any great detail) you can see how important free trade is to Sketchers and frankly to Nike et al. Stock market is largely dependent on international sales channels.

Also of note is that Sketchers spends much less on marketing per dollar of revenue than its competitors. Nike spends not just the most overall, but also the most as a portion of revenues. Given this, Sketchers is quite capable of increasing its relative marketing spend if necessary.

Sketchers is the #1 brand in the US in several categories, number 2 in several others. I would call sketchers the nerd shoe, for casual athletes and real people who don’t fool themselves that they need what Jordan needs, but wants comfort, quality, and function at a good price. There is a lot of room to take this.

The quarter was actually not awful given one time expenses that reduced earnings by a few cents, but the forecast revenue growth of 10% into. Ext quarter is what seems to be the big hang up. Similarly Sketchers did not seem to gain marketshare, like it has the past 3 years.

This, along with what we know is a largely stagnant economy and general anxiety, tough environment, and Sketchers under delivered this Q even in these circumstances. The company is uncertain if these headwinds will continue, thus the disappointing forecast for next Q, even though it will still be a record quarter if met.

Tinker

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Before taking the family on a trip to Disneyland this year I decided it was time for another pair of shoes. I wanted something comfortable, light and airy. Something that could breathe. We would be doing a lot of walking and the forecast was for very warm weather.

I drove out to our local DSW to see what I could find. Last year I picked up a pair of Sketchers (roughly around the same time) before a different trip to Disney. For the past year I have been very happy with that selection.

Last year at DSW the Sketchers were located in the second row of aisles. You had to go looking for them and know thats what you wanted. This year I didn’t have to go very far. They were located right within the first row of aisles fairly close to the checkout. I found the style I was looking for quickly, tried them on and walked around, and knew I had my shoes.

But before making the final decision I wanted to ask the checkout clerk what she thought (I mentioned the shoes were really close to the checkout line and it wasn’t terribly busy).

“Do people buy these shoes?” I asked. “Oh yes, they are very popular. I see lots of people buying them. In the past they weren’t the best looking, but now they are very stylish.”

Of course my shoes were in hand and this was a solicited response. Still, a teenage girl at a DSW checkout isn’t going to care which shoes I buy and it wasn’t likely she had stock in the company either :).

There will be plenty of shoes sold in the coming back to school quarter. Plus, my purchase in July will be included in the tally, so fret not. :slight_smile:

Hope this little update from the field helps calm some nerves out there.

Best,
–Kevin
Long SKX

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Your in-store experience means that someone at Skechers is doing something right. As shoe wearers, it doesn’t matter who that is. But as stockholders, let’s hope that upper management is part of that.

On Thursday night, I saw SKX drop from about $32 during the day to somewhat over $27 after hours, so I put in a guesstimate limit order to short sell a few puts - SKX160722P00026500 ($26.50 EXP 07/22/16) at $1.80 each.

I didn’t expect the price to drop another $1.25 after the market opened on Friday, causing the puts to sell and then go in the money. I’m going to wait until Monday morning this time to see what happens next before thinking about writing calls. At the current share price, I would end up ahead by about $.20 a share if I simply sold them.

I already have some SKX in my IRA, so I don’t necessarily want to hold more shares, and these new ones are on margin in my regular account. I thought there was a very good chance that the puts would expire out of the money, and simply leave me with a nice windfall. But that wasn’t guaranteed, which is why I sell puts on stock that I wouldn’t mind owning, as TMF’s option people advise.