We maintain our long-term Neutral recommendation on Skechers USA Inc. (SKX), the footwear retailer, with a target price of $36.00.
Why the Reiteration?
Skechers continues to offer a diversified portfolio of brands 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.
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.
We remain impressed with the year-over-year growth in the top and bottom lines that Skechers witnessed during the third quarter of 2013 owing to strong sales across domestic and international wholesale operations, and company-owned retail and e-Commerce businesses. This Zacks Rank #2 (Buy) stock, which competes with Nike, Inc. (NKE), stated that the quarterly earnings of 53 cents a share increased over twofold, whereas revenue rose 20.1%.
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.
However, we still hold a somewhat conservative stance on the stock given the lower-than-expected results and maintain our unbiased view. Both the top and bottom lines of the company fell short of the Zacks Consensus Estimate. The quarterly earnings missed the Zacks Consensus Estimate by 13.1%, while revenue of $515.8 million fell short of the Zacks Consensus Estimate of $519 million.
Other Stocks That Warrant a Look
Other better ranked stocks in the retail sector worth considering include, Deckers Outdoor Corp. (DECK) and Steven Madden, Ltd. (SHOO), both which carry a Zacks Rank #2 (Buy).
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