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Skechers Marches Ahead of the Industry: What's Driving It?

Skechers U.S.A., Inc. SKX with its strategic endeavors has been able to sustain momentum. Effective inventory management, well-knit global distribution, cost containment efforts and greater emphasis on introducing new products bode well for this Zacks Rank #3 (Hold) stock.

Moreover, the company’s shares have been performing better than the Zacks categorized Shoe & Retail Apparel industry and the overall Consumer Discretionary sector in the past six months. In the said time frame, shares of Skechers increased 18.2% compared with the industry’s gain of 4.5%. On the other hand, the sector displayed growth of 11%.

Let’s have a detailed look into some of the factors that have been aiding Skechers’ growth and a few of the challenges that the company has been dealing with.  

Diversified Portfolio & Strong International Business

Skechers follows a multi-brand strategy whereby it offers a wide range of products including fashion, athletic, non-athletic and work footwear at compelling prices. We believe that this multi-brand strategy enables the company to roll out new products without cannibalizing its existing brands.

Skechers international business remains a considerable sales growth driver with Europe being the significant market outside the U.S. The company’s international wholesale business revenues constituted 45.7% of total sales and advanced 16.8% during the first quarter of 2017. The company has undertaken expansion of its distribution networks, subsidiaries and JVs to further expand its global reach.

Other Growth Drivers

Skechers e-Commerce business has also contributed towards the company’s sales growth. The company currently operates e-Commerce sites in Chile, Germany and the U.K., and has plans to launch additional sites in Spain and Canada. Additionally, sustained efforts of cost containment, inventory management, product innovation and additional store openings have acted in the favor of the company.

Skechers portrays a healthy balance sheet with cash and cash equivalents of $607.8 million at the end of the first quarter of 2017. The company maintains lower long-term borrowings (net of current installments) of .8 million. The blend of ample liquidity and innovative products positions it to capitalize on future growth opportunities.

Comparison With Industry

A Few Concerns

A certain degree of apprehensions arose regarding Skechers’ bottom line performance. In the last four quarters, earnings per share have declined year over year. Further, the company did not provide an encouraging outlook for the second quarter of 2017. Moreover, we believe that the higher operating expenses and foreign currency translation have also been aspects of concern for the company.

Bottom Line

The company made a sharp come back in first-quarter 2017 delivering a positive earnings surprise, after three straight quarters of earnings miss. Moreover sales also came ahead of the estimate for the second quarter in row. We remain confident in the company’s ability to sustain momentum given its strong growth plans related with product development and business expansion.

Other Picks

Investors may consider better-ranked stocks such as The Children's Place, Inc. PLCE, sporting a Zacks Rank #1 (Strong Buy) as well as Best Buy Co., Inc. BBY and Burlington Stores, Inc. BURL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Best Buy delivered an average positive earnings surprise of 33.8% in the trailing four quarters and has a long-term earnings growth rate of 11.8%.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

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