On Oct 24, 2013, we downgraded our recommendation on footwear retailer Skechers USA Inc. (SKX) to Neutral due to its lower-than-expected third-quarter 2013 results.
Why Neutral?
Estimates for Skechers have been declining ever since it reported third-quarter results on Oct 23. The company’s third-quarter revenues of $515.8 million and earnings per share (EPS) of 53 cents missed the Zacks Consensus Estimate of $519.0 million and 61 cents, respectively.
Following the release of third-quarter results, the Zacks Consensus Estimate for 2013 went down 5.5% to $1.04 per share. The Zacks Consensus Estimate for 2014 also declined 3.9% to $1.73 per share. As a result of both these downward revisions, the company now has a Zacks Rank #4 (Sell).
Though the results were below expectations, both top and bottom line registered year over year growth. The quarterly earnings did increase over twofold, while revenue registered growth of 20.1% owing to strong sales across domestic and international wholesale operations, and company-owned retail and e-Commerce businesses.
We believe with more emphasis on the new line of products, cost containment efforts, inventory management, global distribution platform and strong backlogs, Skechers remains well positioned to sustain growth momentum.
The pros and cons embedded in the stock supports our unbiased view on the stock.
Other Stocks that Warrant a Look
While we prefer to wait for an upward revision in Skechers’ Zacks rank other apparel and shoe retailers worth considering include Deckers Outdoor Corp. (DECK), Nike, Inc. (NKE) and Brown Shoe Co. Inc. (BWS). While Brown Shoe carries a Zacks Rank #1 (Strong Buy), both Nike and Deckers have a Zacks Rank #2 (Buy).
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