On May 17, we downgraded our recommendation on
Skechers U.S.A., Inc.
) to Neutral with a price target of $22.00. This designer,
developer and distributor of footwear for men, women and children
in the United States and overseas currently holds a Zacks Rank #4
Why the Downgrade?
The lower-than-expected first-quarter 2013 results compelled
us to revise our recommendation. Skechers posted quarterly
earnings of 13 cents a share that missed the Zacks' expectations
of 18 cents. Management cited that foreign currency translation
loss of $3 million and a credit of $2.5 million to an account
that bought a major part of excess toning inventory way back in
2011 hurt the earnings by 8 cents a share.
However, the top line showcased strength. Total net sales
surged 28.6% to $451.6 million, reflecting increased demand of
products and healthy performance across all revenue channels.
Moreover, total revenue outpaced the Zacks Consensus Estimate of
With more emphasis on the new line of products, cost
containment efforts, inventory management and global distribution
platform, the company anticipates sustaining the growth momentum
in 2013. The domestic wholesale business marked an elevation of
44%, international business soared 20.7%, retail business sales
grew 16.9% and e-Commerce sales rose 24%.
However, Skechers hinted that due to early Easter on Mar 31
this year and back-to-school deliveries going into the third
quarter of 2013, second-quarter performance would be soft.
Management also projects international business to remain even in
the second quarter due to early Easter and booking trends. We
observed that the Zacks Consensus Estimate for 2013 dipped by 2
cents to 97 cents in the last 7 days.
Given the pros and cons embedded in the stock we prefer to be
on the sidelines at this juncture.
Stocks that Warrant Look
There are certain other stocks in the consumer discretionary
sector that warrant a look. These include Zacks Rank #1 (Strong
Iconix Brand Group, Inc.
) as well as
Francesca's Holdings Corporation
Deckers Outdoor Corporation
) with a Zacks Rank #2 (Buy). These stocks are expected to
continue with their upbeat performances.
DECKERS OUTDOOR (DECK): Free Stock Analysis
FRANCESCAS HLDG (FRAN): Free Stock Analysis
ICONIX BRAND GP (ICON): Free Stock Analysis
SKECHERS USA-A (SKX): Free Stock Analysis
To read this article on Zacks.com click here.