We believe that California-based
Skechers U.S.A., Inc.
(
SKX
); through its distribution networks, subsidiaries and joint
ventures; is poised to enhance its global reach in the footwear
market. Moreover, the company recently posted better-than expected
first-quarter 2012 results. As a result, we upgrade our
recommendation on the stock to Outperform from Neutral.
Skechers, which has lately been focusing on clearing its excess
toning inventory, is now showing some signs of stability through
its increased emphasis on new line of products, cost containment
efforts, inventory management and margin improvement.
In the recently reported first quarter, the company delivered a
quarterly loss of 7 cents per share that fared far better than the
Zacks Consensus Estimate of loss of 27 cents, and improved
substantially from a loss of 54 cents incurred in fourth-quarter
2011. Total sales of $351.3 million also surpassed the Zacks
Consensus Estimate of $336.0 million.
Based on the initiatives taken, Skechers anticipates returning
to profitability in the second half of fiscal 2012, and sustaining
the momentum in 2013 and thereafter. Moreover, international
business remains a significant growth driver for the company's
sales. Management projects international sales to pick up in the
back half of the year.
Skechers portrays a healthy balance sheet with cash and cash
equivalents of $391.6 million at the end of the first quarter of
2012. The company also maintains a low debt-level of $84.1 million.
The blend of ample liquidity and innovative products positions it
to capitalize on future growth opportunities.
Moreover, Skechers continues to offer a diversified portfolio of
brands that includes a wide range of fashion, athletic,
non-athletic, and work footwear at compelling prices. This
multi-brand strategy enables the company to roll out new products
without cannibalizing its existing brands and helps to expand the
targeted demographic profile of customers.
Skechers, which competes with
Deckers Outdoor Corporation
(
DECK
) and
Nike Inc.
(
NKE
), is trying every means to reposition itself for 2012. These
include lowering of selling and marketing expenses, consolidating
of North American distribution facilities under one roof,
streamlining inventory, and new product offerings. Further, the
company also intends to lower its operating expenses relative to
total revenue in the later half of 2012.
Based on the above analysis, we believe Skechers has strong
fundamental outlook and expect it to continue accelerating revenue
and earnings growth over the next few quarters. Our new long-term
Outperform recommendation is supported by a Zacks #2 Rank
(short-term Buy rating).
DECKERS OUTDOOR (DECK): Free Stock Analysis
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NIKE INC-B (NKE): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis
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