Unlike Nike (NKE, Financial) and Under Armour (UA, Financial), it was an awful year for Skechers (SKX, Financial) in 2016, as the stock was down almost 19%. The stock is off to a good start this year, however.
Still, the company’s top-line growth has been declining throughout the past few quarters. The main reasons behind the company’s poor performance in 2016 were a fire accident that took place in its Malaysian warehouse, change in its domestic wholesale business, as well as adverse currency effects.
In the fourth quarter, the company reported EPS of 4 cents, missing the analyst estimates by 5 cents, whereas revenue came in at $764.29 million, exceeding the consensus by $40.57 million. That figure also represents a surge of nearly 6% year over year.
Skechers' annual net sales grew to a record $3.56 billion mainly due to the 27.1% yearly surge in its international wholesale market. With each passing year, the company’s presence in the international market is strengthening. Moreover, the company anticipates international sales to account for 50% of its entire sales in 2017, as the international market represents the most significant growth opportunity for the company.
The company’s joint venture escalated by approximately 62% for the fourth quarter steered by a 48.5% gain in China, along with healthy gains in India and Hong Kong. China continues to be a key driver for the company’s top-line growth, as China shipped more than 10.5 million pairs in 2016.
On the other hand, the company recently announced that it is on its way to launch a joint venture in South Korea to get rid of its third-party distributor model. It looks like a smart move, as it fortifies a tactic of international growth which plays a very significant role keeping in mind the company’s growth initiatives.
Apart from this, Skechers currently has $718.5 million in cash and cash equivalents, which suggest that the company has a healthy balance sheet. Currently, the company has long-term debt of just $67.2 million, which results in a negligible debt load. Additionally, the company’s debt-to-equity ratio is 0.05, which throws light on the fact that its leverage position is very strong.
As a matter of fact, payments for long-term debt are relatively trivial, and the company has plenty of cash that provides it with flexibility to handle the financially hard times.
Summing up
Skechers has faced many problems over the past few quarters, but the company’s growing presence in the international market could steer the stock in the right direction. The stock currently trades at a PE ratio of 13.53, less than industry’s average.
Most important, the company has a strong balance sheet. Furthermore, its domestic growth concerns are also massively decreased, which suggest that the stock can again start moving higher in the coming quarters. As an outcome, stockholders should stick with the recent rally.
Disclosure: No position in the stocks mentioned in this article.
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