Just posted my 11 page report encompassing many hours of detailed research.
Link to my Seeking Alpha blog is http://seekingalpha.com/instablog/729278-retailprodog/97729-why-sketchers-will-shape-up?
You won't get these insights from an analyst's report. But, you should do your own research, which is quite easy on most retail stocks.
Full disclosure: I've bought 31,500 shares and expect them to easily hit $50+ during 2011. I'm a private investor and I don't work for any company or financial organization.
One more variable in SKX favor, at least in the mid to long term is its proven ability to innovate and carve out new markets. They are an aggressive company willing to experiment, with a solid good track record of establishing new businesses and growing them (kids, work, Shape-ups, etc).
Its definitely possible that hrough their constant experimentation (ex. the Resistance Runners) they could stumble onto another large market or further penetrate an existing market. And we still have the very bullish international story, with great synergies when they hit out of the park like they did with Shape Ups.
Trading at around 5X earnings after factoring cash seems petty crazy. Then again, in March of 2009, X cash, they were trading at less than 1X (what turned out to be forward earnings). So with Skechers anything seems possible in the short term.
Very helpful post Pepe, definitely answers many of my questions. I guess we just wait, with some comfort coming from SKX extremely low valuation, high and growing cash position, and the fast growing international business and weak dollar. And then there is the possibility of a buy back Pepe has been mentioning . . .
Thanks again for sharing your work and expertise,
I don’t subscribe personally to Sportscan given the $25k annual fee.
I was given access to yesterday analyze Sportscan data in detail and leads me to conclude that too much is being made of their ‘estimated’ weekly sales volume data for the toning category. The toning category only launched in 2009 and there has been no seasonal history to evaluate trends.
What is clear to me now is that, as( so far) mainly a ‘white shoe’, toning has a seasonal peak through Spring early summer and a huge peak around Xmas.
Now that we have a 12 month history, I can predict that for Skechers toning Xmas will again be huge, at about $15 to $20 million per week for 3 weeks. Then sales will run at around $6mm to $8mm per week until late March then kick up to the $12 to $14 million range through the end of May.
If Skechers could boost the amount of black/brown and boot shipments to retailers, then winter sales volumes would also improve, but I don’t yet see enough of this in the stores. I understand Skechers management is aware of this opportunity. (continued in next post)
Well, no doubt sales were high during the spring early summer and around Xmas. There was a slowdown in the BTS season.
The problem here is that it is very difficult to ascertain whether these fluctuations are due to seasonality or the the product cycle or, most likely to an interaction of the two.
Sales might have peaked in early summer as the frenzy about the new product increased and then slowly bottomed later on as enthusiasm faded, competition from Reebook increased (they gained some market share), and some negative press appeared here and there. Since late summer sales seem to have plateaued, which I guess is not bad news (it could mean that there is a resilient core of customers).
Given the recent sales trend, 3Q results are unlikely to be very strong, as sales have no doubt slowed down. The big questions, in my opinion, are the following:
(1) how will the market react is there is a miss in 3Q forecast. That would be bad, but very possible news, although I wonder how big is the downside give the current ridiculous valuation.
(2) what's next with the company. A combination of new stylish Shape ups, increased advertisement, increasing non-US penetration, publication of scientific evidence supporting tone up shoes, might well push sales and earnings in 2011 above 2010 levels, so we can expect at least a $30 tag if not more.
Would love to hear your opinion on the above.
ok now posted long piece to my Seeking Alpha blog for anyone interested in my research.
Along with a 90% increase in 3rd qtr eps to $1 I expect SKX to confirm, on 10/27, the strong future ahead with a $100 million stock buyback, increasing both the family holding and eps by 10%.
The huge decline in the dollar will add 3% to composite gross margins in 2011 via the impact on the 25% international business.
Thanks Pepe for your continued insight.
Any idea what happened yesterday with the violent price drop? Again, the rise we have seen so far is more sector and broad market driven than any positive news coming from SKX directly, so I certainly hope you are right about sales rebounding. In fact yesterday's give back once again placed SKX recent gains behind its more highly valued competitors DECK, DFW, SHOO etc. In terms of the dollar weakness, that is a given and should be somewhat beneficial as you say.
Thanks again for your continued insights,
I'm hearing no inventory returns by retailers, normal sell through resumed on Shape-ups and no material inventory provisions required for 3rd QTR closing. Super 3rd QTR report coming. Footwear retailers reporting great comps. Bye bye shorts.
Over in the UK currently. Shape-ups start at £90 here which is one and a half times the US list price! And, there is no discounting here, even on the original 'chunky' XF model. Powerful displays in Barratts, Schuh, Brantano, Office, etc. I'm hearing that many European footwear retailers are preparing to jump on the Shape-up train with their OTB.
With the weak dollar International is going to be increasingly profitable for SKX.