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Can Skechers Meet or Exceed Its Strong Earnings Growth Outlook?

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Nov. 22 2019, Updated 5:48 a.m. ET

Skechers’ historic EPS performance

Skechers’ (SKX) diluted EPS (earnings per share) rose at a CAGR (compound annual growth rate) of 10.5% from 2010–2015. However, in the past three years, EPS have risen much faster due to Skechers’ high revenue growth and expense management.

While Skechers doesn’t provide specific EPS guidance, the company is expected to post diluted EPS of $2.11 in 2016, according to Wall Street analysts’ consensus estimate. This reflects a potential rise of 40.7% year-over-year. In the second quarter, EPS growth is expected to be almost flat at $0.52.

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Skechers’ 2016 earnings drivers

Skechers’ EPS growth (IWF) in 2016 is expected to be driven primarily by a rise in revenue, as discussed in the previous article. The company’s projected margin expansions will likely provide it with EPS upside.

Skechers expects a 100-basis-point expansion in its gross margin in 2016. It also expects some leverage at the general and administrative expense level. As a result, its operating margins are expected to range between 12.5% and 14% in 2016, up from 11.1% in 2015.

The outliers affecting EPS growth

Note that Skechers’ performance is typically unevenly distributed during the year due to seasonal factors. The company’s first and third quarters are usually its strongest, as they see the largest rises in revenue and EPS growth.

Seasonal factors also affect the results of other sporting goods companies such as Nike (NKE), Lululemon Athletica (LULU), Adidas (ADDYY), Under Armour (UA), and Columbia Sportswear (COLM). Pull-forward or delayed orders could provide further variability in Skechers’ results from quarter to quarter.

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