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Skechers (SKX) Stays Ahead of Industry, Up About 60% YTD

Zacks Equity Research

Skechers U.S.A., Inc.’s SKX increased focus on new line of products, corporate upgrades and store remodeling projects, cost-containment efforts, inventory management, and global distribution platform have been contributing to the stock’s bullish run on the bourses. As a result, shares of this California-based company have surged 60.2% so far in the year, comfortably outpacing the industry’s rally of 26.5%. This Zacks Rank #1 (Strong Buy) company has also outperformed the Consumer Discretionary sector that advanced 15.7% during the aforementioned period.

The company continues to offer a diversified portfolio of brands that includes a wide range of fashion, athletic, non-athletic and work footwear at compelling prices. We believe this multi-brand strategy enables the company to roll out products without cannibalizing its existing brands and helps expand the targeted demographic profile of customers.

Growth Factors

Skechers’ international and direct-to-consumer businesses remain primary catalysts. The company is making strategic investments to improve its infrastructure worldwide, primarily e-commerce platforms and distribution centers. The company is also focusing on designing and developing of new products for the next year.

The company’s international business is a considerable sales growth driver with Europe and China being significant markets outside the United States. The company intends to enhance global reach in the footwear market through distribution networks, subsidiaries and joint ventures. In this regard, the joint venture in Mexico with its distribution partner is paying off well.

Notably, the company’s international wholesale business grew 18.2% in second-quarter 2019, while direct-to-consumer business improved 25.8%. The international wholesale business grew on account of a 30.7% increase in distributor business, 13.4% in joint ventures and 18.5% in wholly-owned subsidiaries. Management projects international and direct-to-consumer businesses to sustain momentum, and increase in mid-teen and high-single digits, respectively, for the balance of the year.

Further, the company's domestic e-commerce business improved 36.1% during the second quarter of 2019. Also, comparable-store sales climbed 4.9%, including e-commerce sales growth of 34.3%. It is on track with product innovation, additional store openings and increasing distribution channels by entering agreements to boost sales and profitability.

Driven by such initiatives, management now envisions third-quarter earnings in the range of 65-70 cents a share and net sales in the band of $1.325-$1.350 billion. The company had reported earnings of 58 cents and net sales of $1.176 billion in the prior-year quarter.

Other Stocks Worth Considering

Capri Holdings CPRI has an average positive earnings surprise of 9.4% for the trailing four quarters. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deckers DECK has a long-term earnings growth rate of 12.1% and a Zacks Rank #1.

NIKE, Inc. NKE has a long-term earnings growth rate of 12.7% and a Zacks Rank #2 (Buy).

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