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Skechers Poised on Operational Strength: Should You Hold?

With increased focus on the new line of products, cost containment, inventory management, a global distribution platform and sturdy backlogs, Skechers USA Inc. SKX remains confident of sustaining its growth momentum. Management is focused on product innovation, additional store openings, and increasing distribution channels by entering into international distribution agreements to boost sales and profitability. Moreover, the company is confident that overseas operations will contribute 50% to total sales over the next two to three years.

Skechers has been steadily gaining ground by offering stylish and casual shoes at a more compelling price than conventional athletic brands. The company has benefited from the so-called athleisure trend that has been sweeping the retail sector in the U.S. Also, the growing preference for cheaper shoes in the nation is boosting the company’s market share.

Despite a soft domestic retail environment and foreign currency headwinds, the company’s top line witnessed solid growth in the final quarter of 2015. Net sales of $722.7 million beat the Zacks Consensus Estimate of $684.3 million and surged 26.8% year over year. However, we observe that the rate of sales growth decelerated sharply from 36.4% and 40.5% recorded in the second and first quarters of 2015, respectively. In the third quarter, the company had recorded sales increase of 27%.

Nevertheless, Skechers commenced first-quarter 2016 on a high note, with January sales up about 35% and a sturdy first week of February.

Further, it is to be noted that after registering positive earnings surprises in three successive quarters, Skechers posted in-line earnings in the fourth quarter of 2015. The company’s fourth-quarter adjusted earnings of 20 cents a share met the Zacks Consensus Estimate and surged substantially from 14 cents earned in the year-ago quarter.

Given the pros and cons embedded in the stock, Skechers currently carries a Zacks Rank #3 (Hold). Moreover, going by Zacks’ new Style Score System, Skechers has a VGM Score of “A”, which again indicates that the stock is attractive on the basis of Value (V), Growth (G) and Momentum (M).

Well, you can hold the stock for the near term, unless an unprecedented event compels a downgrade in the Zacks Rank.

Stocks that Warrant a Look

Investors interested in the retail space may consider some better-ranked stocks such as American Eagle Outfitters, Inc. AEO and Express Inc. EXPR, both flaunting a Zacks Rank #1 (Strong Buy), and Ascena Retail Group Inc. ASNA, carrying a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
EXPRESS INC (EXPR): Free Stock Analysis Report
ASCENA RETAIL (ASNA): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis Report
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