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Skechers U.S.A., Inc. Message Board

  • yakag yakag Dec 24, 2010 12:12 PM Flag

    The current situation as I see it

    bullish and bearish arguments here:

    1) Michael Greenberg, a lower-profile and risk aversion individual than his father, apparently has more of a say in the company.

    2) The company seems to have maintained reasonably sound financial management. Skechers has plenty of liquidity lately, but this is due to the spike in cash flows deriving from the sudden success of toning shoes. In the past they did use debt, and reached D/E of .7 and 6x interest coverage ratios. That is okay, but is much less financially conservative than, say, Nike.

    3) The trauma from the loss of LA Gear must have reasonably taught them something.

    On the other hand:

    1) I did not like at all the managers' behavior and rhetoric during the 3rd quarter. They were not transparent and it sounded as though they were still in an expansion mode (open more shops, spend more $ in marketing, contract new testimonials) than in a defensive mode.

    2) They do not seem to care too much for shareholders. Even when interviewed about the bankruptcy of LA Gear, Robert Greenberg said it did not constitute of failure for him, since he walked out with $50m. Clearly it does not matter too much to him that all other shareholders lost all of their money.

    3) There is no authority other than the Greenebrg on the board capable of reigning in Robert's extravagance. The newly acquired hedge fund shares are too low to exercise any real teeth.

    4) The sales situation is unclear. Some sources claim that Shape Ups have picked up again in this season. Other sources are saying the exact opposite. Frankly I do not have enough information to understand who's got it right (I don't even live in the US). However, I find it weird that Sam Poser would outright lie about Sportscan data indicating slowdowns).

    So here is the bottom line. We should check those Sportscan data ourselves. They would give us plenty of clues. If sales are still increasing yoy, that's very good news (even if that's sell out and not sell in), especially if average price did not drop excessively. If sales are less than 2009, I think we are in trouble, and we are likely to see negative 4q eps, inventory write off, and, at least 20% off the stock price.

    What happens next depends by the management and that is why it was important for me to get an idea of their quality. If they roll up the sleeves and go into real defensive mode until they find a new blockbuster, then we are okay. However, if (like they did with LA Gear), they go desperate and insist on forcing Shape Ups then we are in trouble. You can expect more inventory write downs, loss of brand equity, progressive deterioration of all financial figures and corresponding decrease in share price.

    Yes guys, this is indeed what Buffett calls a "cigar butt", as someone suggested i.e. a problematic company whose price is so cheap that can make some profit nevertheless. However, Buffett warned repeatedly on investing in cigar butt, as deteriorating business conditions can rapidly erase all the existing surplus.

    So, what do we do? As I keep saying countless of times, the only safe way is to get a hold of Sportscan data. The alternative is holding until 4q release, but you must have the stomach to withstand enormous volatility.

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