Skechers Is Set for More Upside

Skechers (SKX) has been on an impressive run in 2015, appreciating almost 150% so far as its sales growth has taken off at a rapid pace. For example, in the second quarter, it reported 36.4% growth in net sales to $800 million, which was driven by growth in all three of its business channels -- domestic wholesale, international wholesale, domestic and international company-owned retail stores. Due to rapid revenue growth, its gross profit last quarter increased 39% to $374 million.

Top line growth is outpacing expense growth

But, despite this rapid growth in the company’s sales, Skechers was able to control its costs at an impressive pace.
For instance, its operating expenses for the quarter increased to $266 million from $217 million in the year-ago quarter, driven by a 20% increase in selling expenses and a 23% increase in general and administrative expenses. Thus, its top line increased at a faster pace than its costs.

As a result of its cost control, the company’s earnings from operations increased 111% to $112 million from $53 million in the same quarter last year. Skechers has a favorable valuation as it has a trailing P/E ratio of 34.66 and a forward P/E ratio of 22.03, indicating that its bottom line will continue improving in the future.

Moreover, the outlook for the U.S. apparel and footwear industry is positive and therefore, the company will be able to continue improving. Additionally, according to Moody’s data, the operating income of the industry is forecasted to grow 7%-9% for 2015 on a constant currency basis, which will be beneficial for the company.

In order to sustain its growth Skechers is taking various measures. The company has launched a new subsidiary in Latin America, which will oversee more than 30 countries in the region. Furthermore, the company has also entered into a partnership with a leading toymaker in the U.S., JAKKS Pacific, in order to launch a line of dolls which will be based on the popular Twinkle Toes character.

Additionally, the company has moved ahead of its competitors like Adidas, New Balance, and Asics in order to secure its strong position in the competitive U.S. market.


Skechers’ second quarter performance was very impressive with a strong rise in its net sales and gross profit. An impressive increase was also seen in the company’s earnings from operations, along with an increase in net earnings and diluted earnings per share. The forward P/E ratio of the company as compared to the trailing P/E ratio shows that its bottom line performance will improve going forward.
Published on Sep 28, 2015
By Harsh Singh Chauhan

Copyrighted 2020. Content published with author's permission.

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