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Will Skechers' Growth Endeavors Help Revive Stock in 2019?

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Skechers U.S.A., Inc.’s (SKX - Free Report) greater emphasis on new line of products, cost containment efforts, inventory management and global distribution platform bode well. This aided the company to reverse the preceding quarter’s earnings miss with a beat in the third quarter of 2018. Management also provided an upbeat view for the final quarter, despite the year-over-year earnings decline and top-line miss. The sluggish domestic wholesale business performance was compensated by double-digit increase in both international wholesale and global company-owned retail businesses.

Skechers’ domestic e-commerce business also continues to gain traction. Its domestic e-commerce business registered an increase of 15% during the third quarter of 2018. It currently operates e-commerce sites in Chile, Germany, the U.K., Spain and Canada. We also note that global company-owned retail business sales grew 10.6% on 1.9% comparable sales (comps) growth.

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. We believe that this multi-brand strategy enables the company to roll out new products without cannibalizing its existing brands and expand the targeted demographic profile of customers. Management pointed that Skechers D’Lites is fast gaining traction with sturdy demand in North America and Europe, after gaining grounds in Asia. The brand is also set for growth in South America, India and the Middle East.

Also, Skechers’ international business is a considerable sales growth driver for the company with Europe and China being significant markets outside the United States. The company is poised to enhance its global reach in the footwear market through its distribution networks, subsidiaries and joint ventures (JVs).

Skechers’ international wholesale business revenues, which constituted 45.2% of total sales, advanced 11.8% on the back of 22.9% increase in JV business and 11.6% growth in distributor business during the third quarter. Management expects its international distributor business to increase high-single digits, while international subsidiary and JV business to improve double digits during in the final quarter.

Wrapping Up

We believe that the aforementioned endeavors may help revive the stock in 2019. Shares of this Zacks Rank #3 (Hold) company have not only declined but also underperformed the industry in the past six months. It has plunged 22.7% in the same time frame compared with the industry’s decline of 8.2%. Certainly, higher SG&A expenses and sluggish domestic wholesale business performance are major concerns for now.


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