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

  • cwebjohn cwebjohn Jun 9, 2011 4:13 PM Flag


    After attending SKX's analyst meeting today, we now see greater potential for the company to fill retail shelf space with updated lifestyle and new, lightweight athletic footwear offerings for men, women, and kids that we think are innovative and on-trend in design. We also see SKX making progress with its efforts to reduce operating expenses. But we still expect Q2 and Q3 results to be hurt by aggressive clearance of toning category inventory. We cut our 2011 EPS estimate by $0.20 to $0.80 and lower our target price by $3 to $12 on revised historical EV/EBITDA valuation.

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    • Quick thoughts (and, thanks for the post, cw): Analysts will be analysts, and each of you can decide how much weight to give them. In my view, sell-side analysts tend to be trend-followers and their insights do not measure up.

      One problem I see again and again is the failure to distinguish when a company is over-earning and when it is under-earning its "normalized" earnings potential. SKX was in "over-earning" mode in 2010, and the analysts slapped a multiple on those earnings and came up with $50 and $60 targets. As they grind through the inventory problem, the decline in Shape Ups pricing and popularity, and the added costs of the transition to their new distribution center, they have shifted to an "under-earning" phase of the full earnings cycle. Analyst slaps a multiple on this and comes up with a $12 PT.

      Not saying we won't get to $12. Or $10. Markets are nothing if not irrational; I depend on it to make a living. But, those price levels are way below the intrinsic value of SKX. If you subtract out the net cash, the stock is $10-something. The remaining assets are booked at $15-ish, so you are trading at 2/3 of book (net of net-cash), and at about a 13 P/E on depressed earnings. The book value is pretty solid despite what scaremongers would have you believe. Most companies have all sorts of crazy intangibles, etc. on their books ... not here. Even if you haircut the inventory by 30% (which seems high to me since inventory is carried at cost), and if you haircut the receivables by 10% (again, seems high ... I'm not aware of much of a bad-debt problem with their customers), the revised book net of net-cash is $12-ish, so you are trading at about .8 times a book-value that has had its hair cut.

      I really like getting $3 of sales for every $1 in the capital structure. I really, really like it. Unless a company is being terribly mismanaged or has an ominous debt burden, you will be hard-pressed to get these kind of valuations.

      I generally hear good things about Skechers shoes, and this is important because if they don't make product that people want, the sales and earnings will dry up. But, this is generally not the case. In fact, for the last 2 years, they dominated the toning market ... some may say "the shoes are ugly", but guess what, they were selling like mad. They over-ordered and lost control. Bad. But not permanent. I am buoyed by the analysts take that they like the new styles they are seeing.

      Markets anticipate. We won't see a good second quarter, but isn't that a "duh"? If investors want to go buy CROX, go right ahead, but the value proposition looks bad to me. Same with DECK. These are momentum stocks and I'm a value investor. I'll stick with SKX.

    • where is the link???? I hope you can show me one i will be so happy!! that will put sketchers around 8 bucks!!

    • where is the link?

    • Ouch!! A $12 target.

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