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Bull of the Day: Skechers (SKX)

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Put on your cool sneakers and run -- don't walk -- to check out this turn around story. Skechers USA (SKX - Free Report) - Analyst Report) has fought from the back of the pack in the past two years to become a profitable competitor again.

Founded in 1992 and headquartered in Manhattan Beach, California, Skechers designs, develops, and markets active, casual, and hip footwear for men, women, and children through its distribution networks in Canada, Brazil, Chile, Europe, Japan and Asia.

Earnings... Again!

Skechers's fourth-quarter 2012 earnings came in at $0.08 per share, stepping hard on the loss of $0.54 delivered in the year-ago quarter, and the Zacks Consensus Estimate of a loss of $0.11. This was achieved on the back of growth witnessed across segments including domestic-wholesale, international, and the company's over 350 retail stores.

That earnings beat popped the stock 15% out of long base to a 2-year high. Skechers has now delivered positive earnings surprises in 5 of the last 7 quarters with an average beat of 110.8%.

Total net sales for the quarter surged 39.7% to $395 million, beating the consensus estimate by $50 million. The quarter exhibited a marked improvement in gross profit, which soared 50% to $168.5 million, whereas gross margin expanded 280 basis points to 42.6%. The increase was due to higher sales volume, enhanced inventory and fashion-forward products.

Let's take a look at how the Zacks Rank has tracked this story of the decline and rise of Skechers.

And note who else is following the turn-around here: institutional investors. When I saw that volume spike on February 14 I immediately started digging through our databases to find out who's up to something. In addition to that 3.9 million share day after their earnings beat -- over 7X the average -- Valentine's Day saw SEC filings revealing much bigger positions from firms like Fidelity, Vanguard, and insider executive Robert Greenberg who was revealed to have purchased over 6 million shares in Q1.

But the real story on my price chart above is the earnings turn-around. From September 2010, SKX spent most of its time with a Zacks Rank of #4 (Sell) or #5 (Strong Sell). Then in May, the story changed as analysts began raising estimates instead of lowering them. You can see the story transpire right up to today's upward-sloping estimates in the Zacks proprietary Price & Consensus chart.

Traction for Growth

Let's look at 3 key areas where Skechers could continue to rebuild:

Diversified Portfolio of Brands: 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. 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.

Global Opportunities: Management remains committed to focus on innovative products, opening of additional stores and increasing distribution channels with the development of international distribution agreements to improve its sales and profitability. Skechers, through its subsidiaries and joint ventures, is poised to enhance its global reach in the footwear market.

The company's joint ventures in Asia are portraying improvement with growing operations in China, Hong Kong, Taiwan, Singapore, and Malaysia. Further, the company expects to increase its company owned subsidiary business in Japan, to two folds in the next 3 to 5 years.

Skechers international business surged 30% on the back of 17% growth in international distributor business and a 40.5% rise in international subsidiary and joint venture sales. European economic conditions weighed upon the company s performance in Spain and Italy, but doing business in over 100 countries globally offsets these exposures.

A Fit Balance Sheet: Skechers portrays a healthy balance sheet with cash and cash equivalents of $325.8 million at the end of the fourth quarter of 2012. The company also maintains lower long term debt-level of $140.2 million. The blend of ample liquidity and innovative products, positions it to capitalize on future growth opportunities.

Skechers story looks a lot like the rise and fall of competitor Deckers (DECK - Free Report) - Analyst Report) over the past few years -- except that its peak and bottom have both occurred sooner. While SKX trades at 20X vs. 13X for DECK, the earnings recovery story is solidly in place. If Skechers earns the consensus of $0.97 this year, that will represent 411% EPS growth.

And if the stock keeps tracking analysts' rising expectations, the stock profits could certainly buy you a new pair of shoes and then some.

Kevin Cook is a Senior Stock Strategist with

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