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Some Reasons Why Skechers Is a Good Pick

April 09, 2014 | About:
Rustic Nomad

Rustic Nomad

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Skechers USA (SKX) reported outstanding fourth-quarter results and as a result, its share price surged. Though the footwear maker has had a slow start in 2014, it looks very promising as it performed well against peers such as Deckers Outdoor (DECK) and Wolverine World Wide (WWW).

Solid Performance

Skechers’ revenue rose approximately 14% year over year, driven by the stellar performance at domestic wholesale and company-owned retail stores. It also posted earnings per share of $0.28, surpassing Zacks' consensus estimates of $0.16 per share.

Despite bad weather conditions in the Midwest and Northeast, Skechers experienced substantial demand for its footwear across the regions. Skechers’ diversified product offerings such as boots and lined footwear for geographically colder regions proved beneficial for the company in regions hit by severe cold.

Good Moves

The footwear retailer has done exceptionally well in its lifestyle line to increase its sales in both men and women lifestyle products. Simultaneously, Skechers has donated 6 million pairs of shoes via BOBS — the company’s charitable footwear line — to children who were unnaturally affected by the typhoon in Philippines as part of its corporate responsibility. However, the company witnessed soft results in the kids' division as its revenue went down by 10.7% in the fourth quarter. But the footwear retailer anticipates the kids' division to pick up speed in the spring season as the company has a healthy backlog.

Skechers, with its strategic investment initiatives, is working aggressively on its sales, marketing and PR strategies that will certainly help the company pick up momentum in accelerating sales in the current fiscal year. To enhance its products further, the footwear retailer is also engaged in product development with a concrete investment strategy that will undoubtedly yield better financial and operational results for the company in the current fiscal year.

Some of its brands, such as Relaxed fit footwear, Skechers Go Walk, BOBS and Skechers Kids have undergone strong product development, and the company has received positive response from these remodeled product categories.

It has done remarkably well in the international market as its sales increased and exceeded the company’s expectations in regions like Europe, Canada and Brazil that witnessed higher growth in sales. As a result, the company’s international business was up 5.6% compared to the previous quarter, thus acquiring more customers. Skechers expects this momentum to continue in fiscal 2014 and will soon touch double-digit growth across these regions.

In addition to this, the company’s international distribution business has also picked up pace and delivered consistent results as sales in countries such as Mexico, Turkey and Australia increased to triple digit rates in the last quarter. Along with this, the footwear retailer has experienced high double digit growth in sales from Russia. As far as 2014 is concerned, the company considers Mexico and China as its main growth drivers overseas. Hence, the company plans to open approximately 600 Skechers licensed stores with a variety of footwear products in these regions.

The Competition

Despite stiff competition from peers such as Wolverine and Deckers, Skechers has done exceptionally well to remain competitive. Wolverine is also planning to invest in the e-commerce segment to improve its performance. It expects to deliver double-digit growth by increasing penetration of its brand in several markets.

On the other side, Skechers can capitalize on Deckers’ woes. Deckers’ earnings are expected to grow a rate of just 9.4% over the next five years, while its peers are expected to record earnings growth in the mid-teens.

Conclusion

Skechers has a well-diversified business spread across various countries. This enables the company not to rely on any one area for growth. Having started the year on a good note and with its diversified product lines and markets, the company can deliver better operational and financial results in the future.


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