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Skechers Gains More Than 40% in 3 Months: What's Driving It?

Zacks Equity Research

Skechers U.S.A., Inc. SKX appears to be a solid bet, given its sturdy efforts to remain on the growth trajectory. The company’s greater emphasis on new line of products, store remodeling projects, cost containment efforts, inventory management, and global distribution platform are the primary catalysts. Also, Skechers’ domestic e-commerce business continues to gain traction.

All these efforts not only helped the company to deliver robust fourth-quarter 2018 results but also helped the stock to outperform the industry in the past three months. Shares of this Zacks Rank #2 (Buy) stock have rallied approximately 48% compared with the industry’s 25.2% growth.

Let’s introspect.

Factors Behind Skechers’ Bullish Run

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. We believe that 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. 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.

Apart from this, the company is focused on product innovation, additional store openings and increasing distribution channels by entering into distribution agreements to boost sales and profitability. Moreover, Skechers’ international business remains a considerable sales growth driver for the company with Europe and China being the significant market outside the United States. The company is poised to enhance global reach in the footwear market through distribution networks, subsidiaries and joint ventures (JVs).

The company’s international wholesale business revenues, which constituted 43.4% of total sales, advanced 18.4% on the back of a 19.5% increase in joint venture business and 14.4% growth in international subsidiary business during the fourth quarter of 2018. Also, Skechers’ international distributor business surged 19.7%. Meanwhile, 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.

Wrapping Up

We believe management’s well-knitted efforts have helped Skechers to deliver a positive earnings surprise of 34.8% in the fourth quarter of 2018. Moreover, both the top and bottom line grew year over year. Management’s first-quarter 2019 earnings view also came above analysts’ expectations.

For first-quarter 2019, management now projects earnings between 70 cents and 75 cents a share. Additionally, the company anticipates first-quarter net sales in the band of $1.275-$1.300 billion compared with $1.250 billion reported in the prior-year quarter.

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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