3 Factors Likely to Propel Skechers (SKX) to New Highs

A glimpse of Skechers U.S.A., Inc.’s SKX share price movement reveals that it has surged roughly 42% in the past three months compared with the industry’s growth of 16%. We also note that shares of this Zacks Rank #1 (Strong Buy) company is currently trading close to the 52-week high of $36.51. We believe that given the sound fundamentals, the stock may again set a new benchmark.

Certainly, Skechers’ robust third-quarter 2017 performance and a sturdy outlook have played a significant role behind the stock’s bullish run in the bourses. We believe management’s well-knitted efforts have helped the company to make a sharp come back in the quarter and deliver a positive earnings surprise of 37.2%. Net sales also beat the estimate for the fourth quarter in row.

As a result, management now projects fourth-quarter 2017 net sales in the band of $860-$885 million compared with $764.3 million reported in the prior-year quarter. Additionally, the company anticipates earnings per share in the range of 9-14 cents compared with 4 cents delivered in the year-ago period.

Let’s analyze the three factors that may help propel shares of this designer, developer and distributor of footwear to new highs.

 

 

Endeavors to Enhance Reach

Greater emphasis on new line of products, store remodeling projects, cost containment efforts, inventory management, and global distribution platform are the primary catalysts. Skechers’ domestic e-commerce business has also contributed towards sales growth. It currently operates e-commerce sites in Chile, Germany and UK, and has launched additional sites in Spain and Canada.

Management now envisions capital expenditures of about $20-$25 million for the final quarter of 2017, reflecting planned opening of an additional 12-15 company-owned retail outlets, corporate upgrades and store remodeling projects.

Strong International Business

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 its distribution networks, subsidiaries and joint ventures (JVs).

The company’s international wholesale business revenues, which constituted 43.4% of total sales, advanced 25.7% on the back of a 31.4% rise in wholly-owned subsidiary and JV businesses and 5.4% growth in distributor business during the third quarter. The company’s JV business registered growth of 51.5% buoyed by double-digit growth in China and India, and sales from South Korea. Management envisions double-digit growth at international wholesale business.

Diversified Portfolio

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.

Key Picks Apart From Skechers

G-III Apparel Group, Ltd. GIII delivered an average positive earnings surprise of 6.1% in the trailing four quarters. It has a long-term earnings growth rate of 15% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores, Inc. ROST delivered an average positive earnings surprise of 5.5% in the trailing four quarters. It has a long-term earnings growth rate of 10% and a Zacks Rank #2 (Buy).

Wal-Mart Stores, Inc. WMT delivered an average positive earnings surprise of 2.2% in the trailing four quarters. It has a long-term earnings growth rate of 6.1% and a Zacks Rank #2.

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