SWKS and SKX

[strelna]

Encouraged by the UK:ARM results and now AAPL, I have started to rebuild my holding in SWKS.

I have sold SKX for the tax loss. The situation took me by surprise. The tax-loss reason, perfectly good enough, was, I have to say, supported by the nature of the conference call and the stock sale. I feel there is plenty of time to review this one - if I want to.

Because what is leadership? I think a really good CEO would have highlighted, not skimmed, the difficult aspects in the conference call. Anticipating that the analysts would be puzzled, he would have taken care to be very well-briefed, taken charge of the situation early on and explained it very seriously, clearly and at length. I read the transcript three times and was still unclear what exactly had occurred during the quarter and what the implications of inventory were or might be. His whole aim should have been to avoid my confusion.

I also think that leadership is not selling stock (any amount, for any reason) prior to announcing the unexpected results which you already know about. It’s just bad form. The timing does not endear you to the owners of the company. Nor is it morale-boosting; always the remit of leadership. Bad move.

[XMFFlygal]

I guess I am not following you. I thought they were very clear on the call. I do not have the transcript in front of me. But from memory they got one less inventory turn than they thought they might. Some sales were in the prior quarter, the next quarter is historically light. So they may not get that turn. One turn big deal.

On inventory they said opening new stores would require additional inventory, and they are opening more stores in China. So there will be increases in inventory to support those stores.

But any business that grows at 27% is great, as long as you do not pay too high a multiple you are going to do amazingly well with compounding. At a PE of 20 and growing at a rate higher than that, with lots of runway remaining… I followed my system and bought, and I will stay in as long as they continue to grow revenue and earnings, and the multiple is at or below the growth rate.

[oologah]

I thought it was clear concerning inventory. Didn’t get the turn in Sept.
New stores globally, but specifically they mentioned South America, Eastern Europe and China, had to be stocked, that adds to inventory.
Next quarter should be a good quarter so suppliers were pushed to deliver early. It all made sense to me.
The COO was even asked specifically if they were going to use “close out channels” to reduce inventory and he said no, they would reduce through in-line sales because the inventory was “spoken for”.
I added shares
Mike

[Rizzz]

SKX…Next quarter should be a good quarter so suppliers were pushed to deliver early. It all made sense to me…
Mike

Mike,

Can you expound on the next quarter being a good quarter? What makes you think that?

Thx

R

[oologah]

Rizzz:
Management never said exactly during the call that next quarter should be a good quarter. I have pulled a couple of examples from the transcript where it seems they imply that it will be. They did say that part of the reason the inventory was higher was because they had asked suppliers to rush a little in anticipation of a need.
We are pleased that we continue to achieve significant gains in our international business despite the negative impact of foreign currency exchange rates in several key markets, including Brazil, Canada, Chile, and Russia. In the United States, we are now the number two athletic brand. We believe our continued growth speaks to the strength of our brand, despite a sluggish retail environment in the latter portion of the back-to-school season. The third quarter was our best yet in terms of sales and our year-over-year worldwide backlogs are up 20% at September 30, 2015, both clear indicators that our momentum will continue throughout the remainder of the year and into 2016.

Additionally in the third quarter, we began shipping into central Central Eastern Europe as a subsidiary after transitioning several distributors to a subsidiary that now oversees 14 countries. With headquarters in Budapest, we believe this new subsidiary will positively impact our operations in 2016.

We expect the momentum to continue into spring 2016 with the delivery of fresh styles, and we are encouraged by the early feedback from our key accounts during our on-going 2016 buy meetings in our corporate headquarters this month.

And here is a response to the inventory question.
I think it more reflects the fact that we didn’t get the extra turn. We’ve always said, we’d like to have the inventory on hand just in case there is an extra turn. Most of that inventory is certainly spoke for and will ship in October or early November for the excess for the stuff we brought in. And we will continue to build, as we historically do going to the end of the year because first quarter has turned out to be a significantly larger quarter for us.

I think part of it is the new stores. It’s our new operations around the world. We have to put inventory into South America more so than we were in the past. And we put inventory for Central Eastern Europe.

So we own more inventory, more stores; that’s part of it. And part is we didn’t get the extra turn in September. So although the inventory is spoken for, it was here early just in case it was necessary. And it really is spoken for.

And when asked again about inventory, mention is made of 2016:
I think we pushed some of our suppliers to get inventory in early because of our growth anticipated for 2016 and don’t want to push out our production cycle. So it’s stuff that’s spoken for. We’re trying to get in on a much quicker basis. So I don’t anticipate any real downturn in that.

And more on inventory:
And if he we’d have gotten an extra turn, it would have certainly looked the same as the top line. So I think it’s a timing issue. And we don’t see anything there right this minute that is of concern.

And finally a reference to inventory and and a look at the current quarter:
As we close September, as we get into the beginning of October, we had somewhere between 1.5 million pairs and 2 million pairs on the dock that were ready for shipment. We will ship all of those through October and early November. As a matter of fact, we’ve already shipped in excess of a few million pairs in the first week-and-a-half that were here. And we still have 2 million pairs on the dock. It looks like our shipping will start to pick up and hold up as we get to the end of October and early November. At least that’s what it looks like now.

And then for the final finally, when asked about Q1 the response was this:
Well, if you look at the year, the year has somewhere on the street of a 15% or so growth. I think we could grow that rate and then top of that rate. So I think it can grow significantly in the first quarter, certainly over the 15% rate. But a lot of things still have to break. I mean we’re too early to commit to any of that stuff. But it certainly is possible from where we stand.

Hope this all helps, but your best bet is to read the transcript.
Again, I didn’t find a problem with the answers on inventory build up.
In the end we will have to wait and see I suppose.
Mike