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Buckingham Research Upgrades Skechers USA to a ‘Buy’

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Price movement

Skechers U.S.A. (SKX) has a market cap of $4.2 billion. It rose 15.9% and closed at $26.40 per share on December 1, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 16.2%, 27.4%, and -12.6%, respectively, on the same day.

Skechers is trading 21.9% above its 20-day moving average, 21.0% above its 50-day moving average, and 2.9% below its 200-day moving average.

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Related ETF and peers

The SPDR S&P MidCap 400 Index Fund (MDY) invests 0.21% of its holdings in Skechers. MDY’s YTD price movement was 17.6% on December 1.

The market caps of Skechers’ competitors are as follows:

  • Nike (NKE) – $84.4 billion
  • Columbia Sportswear Company (COLM) – $4.1 billion
  • Steven Madden (SHOO) – $2.3 billion

Skechers’ rating

On December 1, 2016, Buckingham Research upgraded Skechers USA’s rating to a “buy” from “neutral.” Also, it set the stock’s price target at $31.0 per share.

In a press release, CNBC reported, “The lifestyle and footwear company disappointed investors with its third-quarter earnings report. However, Krasik believes Skechers is one quarter away from a potential sales inflection.”

It also added, “’While fundamentals will likely remain under pressure for the next one to two quarters, as we indicated in recent research, Skechers’ ability to reduce inventory after 2016 diminishes the risk of another major negative EPS revision in the near-term,’ Krasik wrote in the note. ‘At current levels, we believe the risk/reward is extremely favorable.’”

On November 29, 2016, Robert Greenberg, Skechers USA’s CEO, purchased 500,000 shares of the company’s common stock at an average price of $21.96 per share.

Performance in 3Q16

Skechers reported 3Q16 net sales of $942.4 million—a rise of 10.1% over net sales of $856.2 million in 3Q15. The rise was due to a rise in the sale of its International Wholesale business and Global Retail business.

Between 3Q15 and 3Q16, the company’s gross profit margin expanded by 40 basis points, while its earnings from operations narrowed by 19 basis points. The expansion of the gross margin was due to wider domestic wholesale margins, which were offset by narrower global retail margins and the product sales mix.

Its net income and EPS (earnings per share) fell to $65.1 million and $0.42, respectively, in 3Q16—compared with $66.6 million and $0.43, respectively, in 3Q15. Skechers’ cash and cash equivalents rose 31.0% and its inventories fell 15.6% between 4Q15 and 3Q16.

Sketchers’ current ratio rose to 3.7x and its debt-to-equity ratio fell to 0.33x in 3Q16—compared to 2.7x and 0.48x, respectively, in 4Q15. The company projected net sales of $710 million–$735 million for fiscal 4Q16.

For ongoing analysis of this sector, please visit Market Realist’s Consumer Discretionary page.

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