SKX - May 2015 Portfolio Review
Skechers, my second largest position at 14.5%, has one of the spectacular, straight up, earnings graphs I’ve ever seen. In spite of which it has a lot of skepticism from the investing community, because of past troubles that occurred before my time. This gives it a very reasonable price for its rate of growth. If you are not familiar with it, they make comfortable sporty shoes for walking, running and generally hanging out. I learned about them from my wife who won’t wear anything else since she bought her first pair.
I took a position in it about ten months ago at an average price of about $46.50, and added another position at about $53.25 about two months later. Since then, it went up to $64 (which gave me a quick 38% rise on my initial investment), then down to $49.50, and now up to about $92. All of this in ten months. All of the actual news during that time was consistent, and all good. The down came on the basis of rumors and channel checks that subsequently turned out to have been false or misinterpreted. I now have a 98% gain on my initial position, after ten months.
Here’s what their revenues have looked like since the beginning of 2012. Note that December quarters are always less than September quarters because they ship for the Xmas season in the Sept quarter.
2012: 351 384 429 396 = 1.56 billion
2013: 452 428 516 451 = 1.85 billion
2014: 547 587 674 569 = 2.38 billion
2015: 768
Adjusted EPS over the same quarters have been:
2012:-07-04 22 08
2013: 21 14 53 28
2014: 57 72 113 57
2015: 110
That gives them annual EPS of:
2012: $0.19
2013: $1.16
2014: $2.99
Yes you are seeing that right!!! 2014 was up 158% from 2013, which intern was up over 400% from 2012. As for 2015: In the first quarter they already have $1.10. That’s about what they made in ALL of 2013.
That seems pretty incredible! In my end-of-the-year evaluation four months ago, I said With a current price of $55.70 that gives them a trailing PE of about 17, which seems wildly low for that kind of growth. Well I was correct, as the price is now at $92, up 65% from when I wrote that.
While some stocks seem as if they need to grow into their PE’s, Skechers seems as if it would take a lot of slow down to shrink into their current valuation. I know that clothing goes in and out of fashion, but really…!! They are opening new markets, opening stores, getting more distributors, starting new categories and new lines, etc.
With a price of $91.70 their PE is 26, their rate of TTM earnings growth is 132%!!! And their 1YPEG is currently 0.20, which is beyond incredible.
From the last conference call: “Our sales for the first quarter were 768 million, up 40.5% over last year and the highest quarterly sales in the company’s history. Further, our average price per pair increased by 5.9% or $1.27 in our domestic wholesale business. We saw a 9.3% comp store increase in our global company owned retail business.
Gross margin of 43.3%, diluted earnings per share of $1.10, inventories up 25.6% from the prior year period and a strong balance sheet with 396.7 million in cash, or approximately $7.76 per share.
Despite headwinds including the stronger U.S. dollar, the slowdown at the west coast ports and unseasonably cold weather in certain key markets and less efficient operations than originally anticipated at our European distribution center due to the transition to a new automated systems, we nevertheless achieved the new quarterly sales record and maintained an 11.5% operating margin and strong gross margins of 43.3%.”
This all looks great to me and I have no plans to sell out of this position, but I will certainly keep my eye on it. I don’t think I could put it away for 10 years and forget about it.
Saul
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