Investors want their portfolio to have stocks with a track record of earnings beat, surging share price and a favorable recommendation. Skechers U.S.A., Inc. SKX used to be one such stock. However, of late investors have adopted a cautious stance. So what suddenly went wrong with this Manhattan Beach, CA-based company, which otherwise looks strong based on its fundamentals? Let’s find out.
Skechers did continue with its positive earnings surprise run when it reported third-quarter 2015 results, but what disappointed investors was the revenue miss. Net sales fell short of the Zacks Consensus Estimate, after seven consecutive quarters of revenue beat. Management hinted that a soft domestic retail environment and foreign currency headwinds impacted the sales performance.
We also observed that net sales of $856.2 million soared 27% year over year. However, the rate of growth decelerated sharply from 36.4% and 40.5% recorded in the second and first quarters of 2015, respectively. Moreover, stock has fallen roughly 32% since the announcement of the results on Oct 22, 2015.
Nevertheless, increased focus on the new line of products, cost containment, inventory management, a global distribution platform and sturdy backlogs bode well for growth. Management is focused on product innovation, additional Skechers store openings, and increasing distribution channels by entering into international distribution agreements to boost sales and profitability.
Skechers, which carries a Zacks Rank #3 (Hold), has been steadily gaining ground by offering stylish and casual shoes at a more compelling price than conventional athletic brands. The company has benefited from the so-called athleisure trend that has been sweeping the retail sector in the U.S. Also, the growing preference for cheaper shoes in the nation will help boost the company’s market share.
Stocks to Consider
Investors interested in the retail space may consider better-ranked stocks such as NIKE, Inc. NKE, Foot Locker, Inc. FL and American Eagle Outfitters Inc. AEO, all carrying a Zacks Rank #2 (Buy).
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