Skechers: A Reliable Growth Stock

The shoe company's continuously growing international presence will bear fruit in the coming quarters

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Apr 24, 2018
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Skechers USA Inc. (SKX, Financial) was one of the best-performing sportswear stocks in 2017 as it appreciated almost 54%. The company has also displayed strong signs of upward momentum this year as well as the stock is up nearly 12% year to date.

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Source: Market Realist

Skechers reported strong first-quarter results on April 19. For the quarter, the California-based company posted earnings per share of 75 cents, in line with estimates. Revenue came in at $1.25 billion, beating the consensus by $50 million and increasing 17% year over year.

The company’s sales were driven by new stores opening as well as higher same-store sales across all markets. Its U.S. wholesale surged 8.5% and the worldwide retail store sales jumped 9.5%.

The most significant thing to note is the footwear maker has managed to grow its revenue at a healthy rate over the past 17 quarters and should continue to do so in the future as well.

Despite reporting healthy first-quarter results, shares of the shoe company were down more than 27% after the market closed on April 19. The main reason for the sharp drop was an uncertain outlook on profitability in the upcoming quarters.

Skechers' management said domestic sales could slow down, but international sales are showing no signs of this and are still considered to be the most significant growth opportunity.

China continues to play a vital role in Skechers' overseas expansion, growing more than 30% as well as posting the highest surge in online activity of any geographic region. International revenue accounts for more than 50% of the company’s overall sales for the quarter.

The shoe company's incredible success with e-commerce in China has forced management to continue investing in its digital presence worldwide. Although the company currently has its e-commerce websites in a small number of countries, it plans to launch its website in several more markets in the near future.

Skechers is growing at a healthy rate and has enough cash to invest in e-commerce as well as innovation. The company also recently announced a share repurchase program of nearly $150 million through 2021.

Summing up

After a difficult 2016, Skechers has regained its momentum. While growth has returned in its home market, the company’s international business continues to grow at a rapid pace. Its financials have also improved considerably.

The company has rejuvenated its image over the past 12 months, going from a discount shoe store to high-quality footwear manufacturer. The company currently has a more diversified portfolio of products, which has helped enhance the stability of the business.

Skechers' stock has plunged more than 25% since it reported first-quarter results, presenting a good buying opportunity. It currently trades at a price-earnings ratio of 22.5, indicating it is not expensive. As a result, Skechers is a strong buy at the current price.

Disclosure: No positions in the stocks mentioned in this article.