SKX

Investment Analysis Clubs Saul’s Investing Discussions
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Last quarter’s and FY’s numbers are in:

Record Annual Sales of $2.378 Billion
Fourth Quarter 2014 Net Sales Increased 26.4 Percent to $569.7 Million
Fourth Quarter 2014 Net Earnings of $21.9 Million
Fourth Quarter 2014 Diluted Earnings Per Share of $0.43

Earnings from operations nearly doubled 4Q14 over 4Q13 Earnings from operations in the fourth quarter of 2014 were $33.0 million compared to earnings from operations of $17.1 million in the fourth quarter of 2013.

4Q14 revenue sets new record for period.

Look at this: Net earnings for 2014 were $138.8 million compared to $54.8 million in 2013. Net earnings per diluted share for fiscal year 2014 were $2.72 based on 51.0 million weighted average shares outstanding compared to $1.08 based on 50.6 million weighted average shares outstanding in the prior year.!!!

David Weinberg continued: “2014 was an excellent year for Skechers, and we expect the momentum to continue in 2015 based on domestic and international Skechers retail stores comps of 17 percent in January, year-over-year worldwide backlogs up 60 percent at December 31, 2014, and the steady demand for our product including expansion in new doors and existing doors. With continued investments in our infrastructure for the coming years, including equipment automation upgrades at our European Distribution Center and establishment of a Company-operated distribution center in Chile, $466.7 million in cash and inventories in-line with expected sales, we believe we are prepared for growth in 2015. We believe the best is yet to come, and are looking forward to the first quarter of 2015, which we expect will be a new quarterly sales record of $690 million to $710 million and earnings per share of $0.95-$1.05.”

Calculate out the growth rates here, and then tell me what decision you come to regarding the investment in SKX.

I, for one, hold it, will continue to hold it, and will add to it (Saul, 1)now, because it is incredible and the growth is worth the price or 2)look for dip?),

Lovin’ my own pair of SKX kicks, somehow they feel even more comfortable today, and the investment opportunity in the company.

Feeling like going for a run,
KLVanLiew

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sorry I botched the formatting.

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Here are my notes for myself on Skechers’ extraordinary results.
Saul

Oct 2014 - Announced Sept quarter results
Annual Sales of $2.38 billion
Quarter Sales up 26.4% to $570 million
Quarter Earnings of 43 cents

Net sales for the quarter were $570 million compared to $451 million in the fourth quarter of 2013.
Gross profit margin was 45.2% of sales up from 44.5%.
Operating Margin was 5.8% up from 3.9%.

“The outstanding growth was the result of double-digit improvements in our domestic and international wholesale and Company-owned retail businesses. We are also pleased to note that within our domestic wholesale business, our average price per pair increased by 7.4 percent in the quarter, and within our international wholesale business, we experienced double-digit growth in many key countries that were negatively impacted by currency issues, both further testaments to the strength of our brand and product.”

Net earnings were 43 cents up from 28 cents. (Our earnings were negatively impacted by approximately $7.0 million, or 14 cents per diluted share of which 9 cents was the result of negative foreign currency translations, and 5 cents was the result of foreign and domestic bad debt write-offs). I added the 14 cents back. (I usually take out foreign exchange gains or losses as they don’t reflect how the actual business is going. As for the one-time write-offs, they are obviously one-time. I think that these are costs that don’t reflect the ongoing business and I feel comfortable in eliminating them and in accepting the companies 14 cent estimate for the whole thing.) That gives me adjusted earnings of 57 cents. However, even the 43 cents they gave was up about 54%.

Our tax rate for the year was 20.5%, which was below the forecasted rate of 22.6%. The decrease in its effective tax rate was due to increased international sales and profitability. We expect improved international sales and profitability to continue to have a positive impact on our 2015 tax rate, which is forecasted to be between 20% and 25%.

Fiscal year 2014 net sales were $2.38 billion compared to net sales of $1.85 billion in 2013. Gross profit margin was 45.1% of net sales up from 44.4%. Earnings from operations for 2014 were $209.1 million compared to $93.6 million in 2013. Net earnings per share for the year were $2.72 up from $1.08.

We also announced the opening of our 1,000th Skechers retail store.

Outlook: We are looking forward to delivering new product in the Spring, expanding the Skechers retail store base to an estimated 1,250 stores by the end of 2015, and continuing to see strong double-digit and, in some cases, triple-digit gains in Europe, the Americas, the Asia-Pacific region and the Middle East. We believe there are still tremendous growth opportunities for Skechers in 2015 and beyond.”

We expect the momentum to continue in 2015 based on domestic and international Skechers retail stores comps of 17% in January, year-over-year worldwide backlogs up 60%, and the steady demand for our product including expansion in new doors and existing doors. With continued investments in our infrastructure for the coming years, including equipment automation upgrades at our European Distribution Center and establishment of a Company-operated distribution center in Chile, $466.7 million in cash and inventories in-line with expected sales, we believe we are prepared for growth in 2015. We believe the best is yet to come, and are looking forward to the first quarter of 2015, which we expect will be a new quarterly sales record of $690 million to $710 million and earnings per share of $0.95-$1.05.

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This is what I love"

We believe the best is yet to come, and are looking forward to the first quarter of 2015, which we expect will be a new quarterly sales record of $690 million to $710 million and earnings per share of $0.95-$1.05.

And that $1.05, which they will beat, is up 84% from 57 cents a year ago.

Saul

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Any idea why the market is not responding with more appreciation to all the great growth? The stock has certainly done extremely well over the past 2 years, but I don’t understand the relatively low P/E (23).

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Saul,

I listened to the earnings call. Sounds like they are really emphasizing the international

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Saul,

I listened to the earnings call. Sounds like they are really emphasizing the international expansion. CEO said that he expects international to represent 50% of the sales in a few years (up from the mid 30s in 2014. That should give them some good growth for the next few years.

Another interesting bit of info was that they will grow their stores to 1250 in 2015. That’s 25% growth in the number of stores! That’s more than 1 store every working day. Did I hear that right???

Regarding the 14 cents in earnings for FX loss, why did you add it back? Did you also go back to all the other quarters and remove any FX effects? If FX was favorable in past quarters, management may have neglected to penalize itself on EPS?

Chris

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Doesn’t surprise me. SKX even where it doesn’t own stores has the most prominent shop window displays in the heart of the city. When I lived in central London 6 years + back you could not walk up Oxford street without seeing their window displays - always with full size superstar advertising brand ambassadors. Now I live in Singapore - I cannot walk into Chinatown in the heart of the city without walking past the most prominently displayed window display on the block.

These guys know how to build and push a brand and generate mainstream demand.
Ant

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When I lived in central London 6 years + back you could not walk up Oxford street without seeing their window displays - always with full size superstar advertising brand ambassadors. Now I live in Singapore - I cannot walk into Chinatown in the heart of the city without walking past the most prominently displayed window display on the block. These guys know how to build and push a brand and generate mainstream demand.

Thanks Ant, for a report from the field. That helps get a picture.

Saul

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Regarding the 14 cents in earnings for FX loss, why did you add it back?

Hi Chris. I always ignore foreign exchange gains and losses. The reason is that I want to see how the actual business is doing. If their earnings look better this quarter because of a currency fluctuation, I drop it out. It doesn’t really mean they sold more shoes. If their earnings look worse because of a currency move, I do the same thing. Currencies go up and down. And yes, I try to do it consistently, as a policy, for all quarters and all stocks. But that’s just the way I handle it, and if you want to keep the currency fluctuations, go for it.

Best,

Saul

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Any idea why the market is not responding with more appreciation to all the great growth? The stock has certainly done extremely well over the past 2 years, but I don’t understand the relatively low P/E (23).

Yes, Nike, although growing much, MUCH, slower, has a considerably higher PE. I think there’s a certain tendency among the “sophisticated” people, who wear expensive Nikes, to think “Oh Skechers is just a fad, and it will disappear when it wears off”. They forget that you only need one pair of Nikes at a time, if that’s what you run in, but people who buy Skechers buy lots of them. They stop buying anything else. Also Nike has a market cap of 79 billion, and SKX has only 3.4 billion. SkX could triple in size without being any threat to Nike. Finally, I heard somewhere that Skechers had a problem 5-6 years ago, when they made some health claims for one line of their shoes and were forced to retract it as unproven. This gave them some bad press at the time, and some analysts may still be hanging on to that. On the other hand, their earnings next quarter will be up close to 100% again, they are selling at close to 20 times earnings, and I think that’s just free money for us.

Saul

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By the way, for more on Skechers see the Year End Skechers thread which has a lot, really a lot, more information.

http://discussion.fool.com/year-end-8-skx-my-fourth-biggest-posi…

It’s at post #4982

Saul

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Finally, I heard somewhere that Skechers had a problem 5-6 years ago, when they made some health claims for one line of their shoes and were forced to retract it as unproven. This gave them some bad press at the time, and some analysts may still be hanging on to that.

I don’t think it is so much the bad press. They went in big on toning shoes back then - basically shoes with rounded soles.
Regardless of whether those shoes did what sketchers claimed them to do, they sold big for a short period of time but then demand dropped off very quickly. Working through that inventory and writedowns held them back for quite some time.

On the other side, they spotted that trend and were able to capitalize on it. And I believe that their CEO is the same guy that launched LA Gear sports shoes some 20-25 years ago, which was successful for some time before going bankrupt.

Looking at it positively, I see an ability to spot trends and capitalize on them and hopefully learned lessons to avoid the hangover next time.
On the other side, if it happened again, it could drag the stock down big time, which might be why the market is not valueing SKX at similar PEs as companies with higher perceived stability.

just my 2c

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Another interesting bit of info was that they will grow their stores to 1250 in 2015. That’s 25% growth in the number of stores! That’s more than 1 store every working day. Did I hear that right???

Chris, in the conference call they said that by the end of the year they had 1042 stores, so to get to 1250 is actually just about 20%. They won’t build them all out themselves as some will be set up by licensees and distributors, etc.

Saul

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Chris,

I think you’ve got it right, 1000 stores to 1250 stores, this year! Sounds crazy, but I’m along for the run!

Get your track shoes on,
KLVanLiew