I was asked to give my thoughts on SKX. I haven’t really done a page post on them in a while. But it is a company that I have followed and owned for quite a while. I studied them longer than I owned them, having followed Greenberg when he was with LA Gear.
I like the Company at today’s prices. The report was a really good one. Like all companies with a global business, they were hurt by a strong dollar. I am not sure hurt is a good word to use. Sales were up 27% including the strong dollar and Net income was up 30% including the negative effects of the strong dollar.
Why the drop?
They were trading very high valuation levels before the drop. PE ratios were over 30, so this little breather they are taking is logical, in my opinion. The PE ratio is now about 21.67, which is very good. I feel the drop was partially due to the high PE ratio and the season. With the historically strong quarter over, there isn’t much to look forward to as the historically weakest quarter (fourth) is announced. But after that the quarters historically improve 1 - 3.
They are in an industry where companies tend to trade at low PE ratios, in the low teens, but not while they are growing as rapidly as Skechers. They are trading a bit above the industry average. It is my opinion, the price will go back up soon, yet few companies in the industry is doing better than Skechers.
I do think there will be some pressure during the fourth quarter. Historically SKX big quarter is the third quarter. Their weakest is the holiday quarter because they are still very much a wholesaler, so department stores order for the holiday season, so the department stores do better, but Skechers does better during the third quarter when they get the orders from the department stores. This will change some as time passes because Skechers is building a very strong retail business.
January has been historically weak for the stock price. I expect some pressure. Whether today is the low or if it is pressured down some in late December and January is hard to predict. But after the fourth quarter comes their historically stronger quarters.
International sales, which are hurt by the strong dollar, soared. I expect them to continue to do well overseas. The price drop seems like an opportunity to me.
Skechers did a great job recovering from the Shape-UP shoe disaster too. At the peak of the toning shoe craze, they were selling about $2 billion. That dropped very quickly to $1.44 billion. They went from being very profitable to losing a lot of money. But Greenberg, started cranking out new lines and today, they are selling more shoes than ever and generating more profits than ever. That is one point for management.
As I study the Companies, I own, and watch how management teams respond not just to good times, but recover from bad times, I start to appreciate management. So for me Skecher’s management has racked up some points for how they handled the toning shoe disaster. I am learning to appreciate Greenberg’s abilities to run and build a successful shoe company.
TMF Coverage Fool