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Skechers (SKX) Up 18% in 3 Months: Will the Momentum Prevail?

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Skechers U.S.A., Inc. SKX is benefiting from its focus on new line of products, cost-containment efforts, inventory management and global distribution platform. Also, the company is progressing well with its international and direct-to-consumer businesses. Moreover, Skechers’ domestic e-commerce business continues to gain traction.

These factors have aided the company’s third-quarter 2019 performance. Although Skechers missed on earnings, the top line came ahead of the Zacks Consensus Estimate for the second consecutive quarter. Moreover, both sales and earnings per share continued to increase year over year. Management also provided a decent fourth-quarter view.

For fourth-quarter 2019, the company anticipates net sales of $1.225-$1.250 billion. The same was $1.081 billion in the prior-year period. Management guided fourth-quarter earnings of 35-40 cents a share. The company had reported earnings of 31 cents in the final quarter of 2018.

In the past three months, shares of this Zacks Rank #3 (Hold) company have increased around 18%, outperforming the industry’s growth of 12.1%.

Factors Narrating Skechers’ Growth Story

Skechers’ international and direct-to-consumer businesses remain primary catalysts. International business is a considerable sales growth driver for the company with Europe and China being the significant markets outside the United States. Skechers is poised to enhance its global reach in the footwear market through its distribution networks, subsidiaries and JVs. The company witnessed sales growth of 21.9% during the third quarter of 2019 across its international business, representing 58.8% of total sales.

The company’s international wholesale business grew 21.7% in the third quarter, while company-owned direct-to-consumer business grew 13.3%. The international wholesale business grew on account of 4.4% increase in distributor business, 24.2% rise in joint ventures and 27% growth in wholly owned subsidiaries. Significant dollar gains came from subsidiaries in India, Germany and Spain and distributors in Russia, Turkey and UAE. Management expects international and direct-to-consumer businesses to sustain momentum in the final quarter and increase at a rate similar to the third quarter.

Also, the company’s domestic wholesale business returned to growth path. Management informed that the company witnessed growth across all regions with prominent markets being Germany, the U.K., Spain, India, Turkey, UAE, China, Russia and Japan. Moreover, the joint venture in Mexico is performing well. The company is making investments to improve infrastructure worldwide, primarily e-commerce platforms and distribution centers. It is also focusing on designing and developing of new products.

The company 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 helps to expand the targeted demographic profile of customers.

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