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Here's Why You Should Include Skechers in Your Portfolio

Zacks Equity Research

Skechers U.S.A., Inc. SKX appears to be a preferred pick, as it seems to have all it takes to catch investors’ attention. The company’s emphasis on new line of products, store remodeling projects, cost containment efforts, inventory management, and global distribution platform bode well. Also, its domestic e-commerce business continues to gain traction.

Backed by these tailwinds, this Zacks Rank #2 (Buy) stock has gained approximately 38% in past three months, outperforming the industry’s growth of 12.7%.


 

Let’s take a closer look at the aspects driving the company’s performance.

Factors Narrating Skechers’ Growth Story

Skechers is focused on product innovation, store openings and increasing distribution channels to boost sales and profitability. Its international business remains a major sales driver, with Europe and China being the significant foreign locations. We note that the company is poised to enhance global reach in the footwear market through distribution networks, subsidiaries and joint ventures (JVs).

During the fourth quarter of 2018, Skechers’ international wholesale business revenues (which constituted 43.4% of total sales) advanced 18.4% on the back of a 19.5% increase in JV business and 14.4% growth in international subsidiary business. Also, its international distributor business surged 19.7%.

As mentioned earlier, China remains one of the important markets with about 22.8 million pairs shipped in 2018. Business in China grew 21.5% during the fourth quarter of 2018.

Apart from these factors, the company continues to offer a diversified portfolio of brands that includes a wide range of fashion, athletic, non-athletic, and work footwear at compelling prices. We believe that this multi-brand strategy enables the company to roll out new products without cannibalizing its existing brands and helps them expand customer base. Management pointed that Skechers D’Lites is fast gaining traction with sturdy demand in North America and Europe. The brand is also set for growth in South America, India and the Middle East.

All these efforts aided Skechers to deliver a positive earnings surprise of 34.8% in the fourth quarter of 2018. Both the top and the bottom line grew year over year. Going ahead, we expect all the aforementioned factors to continue bolstering the company’s performance, and help it remain in investors’ good books.

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Rocky Brands, Inc. RCKY delivered average positive earnings surprise of 43.6% in the trailing four quarters. It carries a Zacks Rank #2.

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