Skechers (SKX, Financial) has a habit of crushing the earnings estimate. The company has surpassed the consensus estimates many times, and the same happened when the company released its recent quarterly report. However, the share price hasn’t reflected the tremendous earning beat, which is why I think it has more upside potential and is a great buy.
Upbeat quarter
Skechers reported an upbeat first quarter with total revenues of $546.5 million, which was a 21% increase from the previous year. The gross margin was 44% with total earnings of $31 million and EPS of $0.61. The gross profit was $240.4 million more than previous year’s $192.7 million mark, with an increment of 130 basis points.
The company saw a rise in first-quarter sales comprising a 20.7% increase in the domestic wholesale business, a 26.3% increase in the international business, a 15.9% increase in the retail business and a 5.6% comp store increase. This quarter’s success is credited to the mass sales of the footwear and an increase of 5.1% on an average price per pair.
Bright future
The first quarter of fiscal 2014 saw a booming demand for Skechers' footwear with a large increase in business at both the domestic and international ends. Skechers plans to expand its retail operations via opening another 50 to 60 new stores, globally. While the company’s international distributors, joint ventures and licensees open more and more number of stores this year, the total SKECHERS store count at the end of the year is approximated to 1,070.
Skechers has been surprising its customers with high performance innovative products. Skechers GOrun Ride 3 bagged the best buy award while Skechers GOrun 3 got the best value award. The company increased its publicity with the Olympian marathoner Meb Keflezighi winning the Boston marathon in Skechers GOMeb Speed 3, which are yet to see the market.
Skechers attained double-digit improvement in the men's and women's business and a high single digit growth in the kids business, which came from the men's and women's SKECHERS USA sport, work lines from SKECHERS and sport active lines for women. The company simultaneously succeeded in multiple key product initiatives around the globe, including SKECHERS GOwalk, Relaxed Fit, SKECHERS sport and SKECHERS kids footwear
In Europe, the company saw a massive double-digit growth in the sales in all the regions that it distributes. The company’s Southeast Asian joint ventures have also been performing well with a 50% year-over-year growth in China. Not only this, the three-digit growth in Indonesia, Turkey and Taiwan and double-digit growth in Australia, New Zealand, South Korea, Mexico and the UAE, are all contributing to the overall success.
Skechers also spends on celebrity endorsements, which has definitely worked in favor of the company but is a costly way of marketing. The stock is already up 19% this year and is expected to get even better. The company performed very well even in the cold weather and the following Easter. With the current strategies, Skechers is destined to continue to drive its growth, hence attracting the investors to consider this stock.
