TMF1000 on SKX

Investment Analysis Clubs Saul’s Investing Discussions
1

For those with Hidden Gem subscriptions, Tom E. gives his opinion of SKX today at http://discussion.fool.com/1008/hi-matt-i-think-skx-is-a-buy-it-…

My personal opinion is that when Saul’s and Tom’s opinions align on specific stocks, think long and hard before disagreeing. That is just my personal opinion. We all must come to our own conclusions before entering/exiting positions, of course.

I would also add that I doubt either one is concerned too much with what the stock price is going to be this Christmas and probably have much longer time horizons.

  • Matt
12 Likes
2

I also bought some shares today at $29.86 and may sell a duplicate number of puts at some point soon, depending upon how things go from here.

Very happy to get in on this stock at this price point.

Also bought more AMBA today since I think it is a wonderful company and expect that will show in the longer run.

Anyone thinking of a trade on VRX? This stock was much higher (almost double) and I now see it has fallen to where it was last year. Ackman just spent $1B dollars on it so there might be a sympathy buy here :slight_smile:

FYI Only
Mykie

3

My take for what it is worth. I’m sure much of this has already been said, but it helps me to write this out anyway. I could not read TMF1000’s post.

Overall revenue growth of 27% and EPS growth of 30%.
TTM EPS Growth - 70%.
Current PE - 21.8 (Price - $31.78)
1 YRPEG - 0.31

From the semi-log chart, the TTM line has flattened versus the previous three quarters. However, I see the same exact flattening in the third quarter last year. The slope ticks up considerably starting in the next quarter (Q4).

After the September quarter last year, the price dipped below the TTM line meaning the PE was slightly below 20 for a short period of time.

Management is telling us the domestic landscape is difficult and they continue to work on new marketing campaigns to help boost sales. Domestic grew 11.8% over which half was price increases. Pricing power is important but will have a limit overtime.

International sales now makes up 40% of total sales and is absolutely on fire by all accounts. Overall international sales grew 52.9%.

Selling expense remains flat at 7.4% of sales versus 7.5%. SG&A remains flat at 26.9% versus 27% last year. Gross margins were the same at 45.2%.

One could back out the “one time expenses” and I certainly believe the legal fees fit within that category. We may see legal fees for a few more quarters, but those should go away by and large. So, if we back out legal fees, the EPS should have been 6 cents higher roughly equating to a total of 49 cents.

However, I don’t see the need to actually adjust for those items. The business is humming along quite nicely. The 1 YRPEG remains low given today’s price. This certainly feels like a buying opportunity.

One could hone in on the 38% increase in inventory. One quarter of increased inventory isn’t terribly concerning although several repeat performances could be. One could also point to domestic weakness as a reason to avoid the stock. However, you still have excellent overall growth at a reasonably low PE.

Sorry that some of this diatribe refers directly to the semi-log charts without more explanation. I think those that use the semi-log charts should be able to follow the logic.

I’ll be buying or setting up a synthetic long on Monday.

Take care,
A.J.

13 Likes
4

A.J. Nice summary.

I believe consumer goods companies typically raise inventory in third quarter to fulfill demand in fourth quarter. I haven’t compared numbers to last year’s but this is a common theme.

Please share synthetic call detail if you like, I am thinking of buying some as well.

5

A.J.,

One could hone in on the 38% increase in inventory. One quarter of increased inventory isn’t terribly concerning although several repeat performances could be.

My first reaction was that the surge in inventories was in preparation for the holiday season, or perhaps for the release of Star Wars. But looking back at last year, there was no similar increase in inventory.

Not sure what to make of it.

Tiptree, Fool One guide, long SKX

5 Likes
6

My first reaction was that the surge in inventories was in preparation for the holiday season, or perhaps for the release of Star Wars. But looking back at last year, there was no similar increase in inventory.

It would seem reasonable that inventory would be higher in proportion to sales being higher. Also, I wonder if they found themselves missing sales last year by not having sufficient inventory.

1 Like
7

My take for what it is worth. I’m sure much of this has already been said, but it helps me to write this out anyway.

Hi AJ, I think you got it just right.
Saul

8

Hi Matt, I don’t yet have permission to repost what Tom wrote but he was posting on a Hidden Gems community board (Skecher’s isn’t actually a HG selection), so I’ll just paraphrase what he wrote (combining comments from three posts that he and I made):

He feels it’s currently a buy. He’s been following it at least six years. He thinks that this would be a good time to start a position and then ease into it further. He asked for opinions from others.

I responded as follows: Hi Tom, I added some to my already large position at $29.88 today. I figured (that, after all) this WAS record revenue for them for a quarter, up from record revenue the quarter before sequentially, and from record revenue the quarter before that sequentially. It’s not like their business is falling apart to warrant a 30% drop in price. And revenue was up 27% year over year. And the 5.5 cents per share worth of legal expenses are for things that are already gone or will be very soon. And the “terrible” earnings were up 30% from a year ago.

He responded to me that the fourth quarter is their weakest, but that he thinks they will be hitting new highs by the third quarter next year. If not, the PE will be so low that they would have to be very cheap. He then said that he thought the stock price would be back up by the FIRST quarter of 2016, and maybe sooner (which was even more optimistic than what he had said a few sentences before).

Again, because he thinks it and I think it doesn’t mean it is guaranteed to happen.

Saul

5 Likes
9

Hi all,

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.

tom e

thomas engle
TMF Coverage Fool

57 Likes
10

Thanks so much Tom. We appreciate your comments very much.
Saul

2 Likes
11

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.

I spent about 30 years at a very large aerospace firm. For most of the company’s history, HQ was in Seattle, now it’s in Chicago - maybe you can guess the name.

I worked under 5 different CEOs at this firm. In that time I came to understand that the job of CEO is very difficult, very important and often not performed well. To some degree this extends to every manager that would be considered an executive (generally defined as any manager with a personal employment contract).

Executives are important because their decisions matter. The CEO (and CFO) are even more important because their behavior matters and sets the tone and directs the culture of the company.

The Board usually doesn’t matter much, except when it come to selecting (or ratifying) the choice for CEO when the current one departs. The Board of the company I worked at made some colossal blunders when they failed to promote the best possible choice for CEO (who subsequently left to run an auto firm) and followed up that act of stupidity by giving the job to the guy who had been CEO of our merger partner. This was the same guy who had groomed the primary scandal maker causing the current CEO to fall on his sword (even though he had little to do with it). Also the same guy who previously as COO had single-handedly destroyed generally good employee morale by eliminating a boat load of benefits (cost-cutting in order to improve earnings without actually doing anything to improve operations).

3 Likes
12

Brittlerock,
I had owned your companies stock for a long time and finally let it go this year, too many issues.