Robert Olstein (Trades, Portfolio), chief investment officer of the Olstein Financial Alert Fund, seeks long-term capital appreciation with a “defensive investing” approach. Olstein and his management team search for companies with high value potential and low downside risk. Such companies have high financial strength and trade below their intrinsic value. During fourth-quarter 2016, Olstein gained positions in Sketchers USA Inc. (SKX, Financial), Nike Inc. (NKE, Financial) and VCA Inc. (WOOF, Financial).
Sketchers
Olstein invested in 273,444 shares of Sketchers at an average price of $23.07 per share. With the transaction, the guru increased his portfolio holdings by 0.87%.
The California-based footwear manufacturing company has a robust financial outlook for early 2017, with a financial strength rank of 8 and a profitability rank of 7. Sketchers has solid cash-to-debt and interest coverage ratios. Additionally, the company’s Altman Z-score increased from a 10-year low of 2.58 to its current value of 7.36 since 2012, suggesting Sketchers seldom faced financial distress during the past five years.
Sketchers reported record fourth-quarter net sales of $764.3 million, outperforming the prior year quarter's sales by about 5.8% and exceeding the guidance range by approximately $40 million. Higher international sales, including a 48.5% increase of sales in China, drove strong quarterly revenue growth. Sketchers continues to grow its global network, which includes 500 stores in China and over 50 stores in seven other countries. Gross margins increased 1% from fourth-quarter 2015, with high gross margin growth in the retail and international subsidiary sales segments.
Chief Financial Officer David Weinberg praised the company’s “well-established brand and prominent position” in the U.S. and expanding international business. Weinberg expects the company’s international business to increase to more than half of the company’s total sales, as investments in Asian and Latin American companies continue representing good growth opportunities.
For full-year 2016, Sketchers reported record net sales of $3.56 billion, outperforming full-year 2015 net sales by about 13.2%. CEO Robert Greenberg expressed how 2016 was a “significant growth year” for Sketchers, which received the 2016 Plus Award for Children’s Design from Footwear Plus. Additionally, Sketchers remained the second-best sports footwear brand in the U.S. and the top walking brand, work brand and dress/comfort casual brand for 2016.
Even though the company’s price declined during January 2017, Sketchers closed at $23.33 per share Feb. 9, about 3.28% higher than its previous close of $22.54.
Nike
Olstein invested in 66,000 shares of Nike at an average price of $51.30 per share. The guru increased his portfolio by 0.43% with the transaction.
Even though Nike’s Piotroski F-score is a modest 4 out of 9, the Oregon-based sports giant still has a strong financial strength rank of 7.
Nike reported solid earnings results for their fiscal 2017 second-quarter, including revenues of $8.2 billion and diluted earnings per share of 50 cents. Compared to the prior year quarter’s values, company revenues climbed 6%, driven by higher sportswear and running sales. Despite lower gross margins, Nike increased net incomes and diluted earnings by 7% and 11% respectively.
In its second-quarter earnings call, Nike’s management stressed the company’s innovative approach and how consumer behavior drives its innovative trends. This approach led to 28 consecutive quarters of revenue growth “unrivaled in [Nike’s] industry,” and management suggests this trend will continue in the quarters ahead. President Trevor Edwards branched off CEO Mark Parker’s comments on Nike’s innovative approach, which led to double-digit revenue growth in the Running segment, one of the company’s largest performance categories and drivers of Nike’s Sportswear business.
Nike’s strong revenue growth contributed to expanding operating margins and solid returns on equity, both currently near a 10-year high. The company’s operating margin and return on equity outperform 85% and 93% of global footwear and accessories companies respectively. With strong profit margins and returns, Nike’s profitability ranks 8 out of 10 and has a GuruFocus Business Predictability Rank of four stars out of five.
As the company has strong growth potential, Manning & Napier Advisors Inc. purchased 78,550 shares of Nike during fourth-quarter 2016, about 12,550 shares more than Olstein did.
VCA
Olstein invested in 122,150 shares of VCA at an average price of $65.30 per share. Among the three buys discussed in this article, this transaction increased Olstein’s portfolio the most with 1.08%.
Like Nike, VCA also has a profitability rank of 8 and a four-star predictability rank. The pet care company has a slightly higher financial strength rank and Piotroski F-score than does Nike, suggesting a stronger financial outlook.
The Los Angeles-based animal health care company reported record fourth-quarter revenues of $643.1 million, an increase of about 20.5% from the prior-year quarter. Gross profit and operating income increased 14.5% and 16.3% respectively. For full-year 2016, revenues increased 18%, gross profit increased 16.1% and operating income increased 17.2%. Higher gains in the two business segments, Animal Hospital and Laboratory, drove increases in its revenues.
CEO Bob Antin further discussed the company’s solid revenue growth: Animal Hospital revenues increased 26.2% during the quarter while Laboratory revenues increased a more modest 5.3%. Strategic acquisitions of 22 independent animal hospitals boosted the company’s revenues in the Animal Hospital segment, which accounted for about 79% of consolidated company revenues for the past three years as mentioned in VCA’s 2015 annual report filing with the Securities and Exchange Commission.
See also
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Disclosure: I do not have postions in the stocks mentioned in this article.
