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Skechers (SKX) Up More Than 38% YTD: Growth Plans on Track

Zacks Equity Research

Shares of Skechers U.S.A., Inc. SKX have outperformed the industry and the overall sector year to date. This Zacks Rank #1 (Strong Buy) stock has gained 38.3% compared with the industry’s growth of 13.4% and the overall sector’s 16.1%.



Markedly, Skechers’ increased focus on new line of products, corporate upgrades and store remodeling projects, cost-containment efforts, inventory management, and global distribution platform bode well.  Also, the company has a remarkable earnings history, with the bottom line recording the fourth straight quarter of positive earnings surprise in second-quarter 2019.

Notably, management is optimistic about the third quarter. It guided third-quarter 2019 earnings of 65-70 cents a share and net sales of $1.325-$1.350 billion. The company had reported earnings of 58 cents and net sales of $1.176 billion in the prior-year quarter.

That said, let’s delve deeper into the factors driving the stock.

Key Factors

The international business is a considerable sales growth driver for Skechers, with Europe and China being significant markets outside the United States. The company intends to enhance global reach in the footwear market through its distribution networks, subsidiaries and JVs. In this regard, the joint venture in Mexico with its distribution partner is paying off well.

Notably, its international wholesale business grew 18.2%, while direct-to-consumer business improved 25.8%. The international wholesale business grew on account of a 30.7% increase in distributor business, 13.4% in joint ventures and 18.5% in wholly-owned subsidiaries. Notably, management projects international and direct-to-consumer businesses to sustain momentum, and increase in mid-teen and high-single digits, respectively, in the remaining part of the year.

Further, the company's domestic e-commerce business grew 36.1% during the second quarter of 2019. Also, comparable-store sales climbed 4.9%, including e-commerce sales growth of 34.3%. Additionally, the company is on track with product innovation, additional store openings and increasing distribution channels by entering agreements to boost sales and profitability.

The Bottom Line

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 this multi-brand strategy enables the company to roll out products without cannibalizing its existing brands and helps expand the targeted demographic profile of customers. The company is making strategic investments to improve its infrastructure worldwide, primarily e-commerce platforms and distribution centers.

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