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Why Did Adidas File a Lawsuit against Skechers?

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Jul. 12 2016, Updated 2:42 p.m. ET

Price movement of Skechers

Skechers USA (SKX) has a market cap of $4.8 billion. It rose by 1.1% to close at $31.12 per share on July 11, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 5.9%, 1.5%, and 3.0%, respectively, that day. SKX is trading 6.5% above its 20-day moving average, 2.4% above its 50-day moving average, and 1.7% below its 200-day moving average.

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Related ETF and peers

The SPDR S&P MidCap 400 Index ETF (MDY) invests 0.25% of its holdings in Skechers. The ETF tracks a market-cap-weighted index of mid-cap US companies. The YTD price movement of MDY was 10.2% on July 11.

The iShares Dow Jones US ETF (IYY) invests 0.02% of its holdings in Skechers. The ETF tracks a broad, cap-weighted index of US companies covering 95% of the US market.

The market caps of Skechers’s competitors are as follows:

  • Nike (NKE): $94.4 billion
  • Columbia Sportswear: (COLM): $4.1 billion
  • Steven Madden (SHOO): $2.1 billion

Latest news on Skechers

In a press release on July 11, 2016, Reuters reported that “Adidas AG on Monday escalated its legal battle against Skechers USA Inc over athletic sneaker designs, filing a lawsuit accusing Skechers of stealing its ‘Springblade’ concept for its similar ‘Mega Flex’ shoe. In a complaint filed in U.S. District Court in Portland, Oregon, Adidas said Skechers willfully infringed two patents related to Springblade, a three-year-old design whose midsole includes blades meant to help propel runners forward.” It added that “Adidas accused Skechers of developing its Mega Flex shoes, including Mega Blade 2.0 and Mega Blade 3.0, as ‘takedowns’ that copy the Springblade technology without the cost of creating it.”

Skechers’s performance in fiscal 1Q16

Skechers reported fiscal 1Q16 net sales of $978.8 million, a rise of 27.4% over the net sales of $768.0 million in fiscal 1Q15. The company’s gross profit margin and earnings from operations rose by 2.3% and 57.1%, respectively, from fiscal 1Q15. Its net income and EPS (earnings per share) rose to $97.6 million and $0.63, respectively, compared with $56.1 million and $0.37 in fiscal 1Q15.

SKX’s cash and cash equivalents and inventories fell by 12.6% and 19.1%, respectively, between fiscals 4Q15 and 1Q16. Its current ratio rose to 3.2x, and its DE (debt-to-equity) ratio fell to 0.38x, compared with 2.7x and 0.48x, respectively, in fiscal 4Q15.

The company has projected net sales in the range of $875 million–$900 million for fiscal 2Q16. This guidance assumes no shift or pull forward of orders in 2Q16 from 3Q16. In the next part of this series, we’ll discuss Visteon.

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