SKX Market Research & Analysis Report
Updated Aug 14, 2015

Growth and Balance Sheet

The company reported net income of $79.8 million, or $1.55 diluted earnings per share for the second quarter of 2015 ending June 30. That's up from net income of $34.8 million, or 68 cents diluted earnings per share for the same quarter last year. Revenue for the second quarter was a record $801 million, up from $587 million for the same quarter last year. The huge increase is due to strong demand for the product worldwide. All of company’s segments recorded an increase in comparison to the same quarter last year. Domestic wholesale segment revenue was up 31.9% to $338.6 million, primarily due to strong sales and growth in key segments, as well as to increase in average selling price. The international wholesale segment revenue was up 60.1% to $241.9, primarily due to increase in sales in subsidiaries in UK, Germany, Canada, and China. Retail segment revenue was up 23.7% to $212.7 million. Company’s gross margin was up over 90 basis points to $46.8% for this quarter, from 45.9% for the same quarter last year. The operating margin improved from 9.2% for last year’s second quarter to 14% for the current quarter. Net cash provided by operating activities for the six months ending June 30, 2015 was $86.9 million, up from $74.3 million for the same period last year. Cash and cash equivalents as of June 30, 2015 were $513.9 million, in comparison to $466.7 million as of December 31, 2014. SKX forecasted EPS for the third quarter of 2015 are expected to be from $1.57 to $1.65, compared to actual EPS of $1.01 for the third quarter of last year. The financial strength indicators of the company are at satisfactory levels. Company’s current ratio is 2.53 and the industry average ratio is 0.93. The quick ratio of 1.74 is also at much better levels than the industry average of 0.75. The interest coverage ratio of 13.38 is trailing than the industry average of 133.40, but it is at very healthy levels. In terms of efficiency and effectiveness, the asset turnover ratio of 1.62 is much better than the industry average of 0.34; the inventory turnover ratio of 3.71 is better than the industry average ratio of 1.44; and the ROE of 19.57% is at worse levels than the industry average of 21.2%.

Valuation

SKX PE stands at 37.39 above the industry average of 19, and above the stock market average represented by the S&P 500 P/E of 21.69. The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 7.21x to 97.13x trailing 12-month earnings. SKX's current Price/Sales of 2.75 is above the average of its industry of 1.40. SKX’s head to head comparison to its main competitors shows that the company has average gross margins, and one that is in line with the industry average. The achieved operating margin of the company is higher than Adidas, but below what Nike is making, and it is above the industry average. The company quarterly revenue growth rate is much above what the competitors have achieved for the quarter, but below the industry average. The company trades at the higher P/E ratio in comparison to the selected peers, and at second highest P/S ratio. With the lowest (best) PEG ratio the higher valuation ratio might be justified. SKX’s twelve trailing months EBITDA is $360.33 million, lowest result from the selected competitors, but above the industry average EBITDA of $148.73 million. The stock is currently trading below its intrinsic value of $178.43, this suggests that the stock is currently undervalued at these levels. The beta of 1 implies same volatility of the stock with respect to the S&P 500. SKX has shown favorable earnings consistency over the last five years. Moreover, company’s earnings have increased by 18.56% over the same period. The current quarter earnings in comparison to the same quarter last year have increased by 128%. SKX’s Total Debt/Equity of 8.69 is below the required maximum, and it is below the industry average of 36.4. SKX’s current price levels are below the maximum level, 6.74% below the 52 week high of $163.60, and the technical analysis give positive view of the stock. The majority of analyst ratings are buy and outperform. SKX currently does not pay dividends.

About SKX

Skechers U.S.A., Inc., (Skechers) is a designer and marketer of Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under the Skechers GO brand name. The Company’s brands are sold through department and specialty stores, athletic and independent retailers, boutiques and internet retailers. In addition to wholesale distribution, its footwear is available at its e-commerce site and its own retail stores. As of February 15, 2015, the Company owned and operated 119 concept stores, 146 factory outlet stores and 98 warehouse outlet stores in the United States, and 51 concept stores, 33 factory outlet stores, and three warehouse outlet stores internationally.

Competitor Comparison

Skechers USA Inc. (NYSE: SKX) N.V.

Highlights

Skechers U.S.A., Inc. designs, develops, markets, and distributes footwear for men, women, and children, as well as performance footwear for men and women under the Skechers GO brand name worldwide. The stock closed yesterday’s trading session at $152.57. In the past year, the stock has hit a 52-week low of $47.76 and 52-week high of $163.60. The intrinsic value of the stock is above the current price. SKX has a market cap of $7.95 billion and is part of the Consumer Goods sector.

• Multiple product lines of lifestyle and athletic footwear
• Diversified product distribution channels improving profitability

• Litigations
• Excessive dependence on few customers  

SKX Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. SKX's 52 week high is $163.60, current price is $152.57, is 6.74% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 37.39, the average industry P/E ratio is 19, and is below the S&P 500 P/E ratio of 21.69.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.  Insiders own 13.68% of SKX stock. Management's representation is large enough. This does satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

SKX is trading in the range of $118.02 - $163.56 in the past 30 days. The stock has been showing support around the level of $149 and resistance in the $164 range. The stock is trading above the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 66.32. As can be seen from the chart on page 1, the stock has been in a bullish trend since the beginning of the year. In late April the stock gapped up and since then it has more than doubled in value. Last week the stock hit resistance at around $164 and has contracted back a little, but there is no sign that the bullish trend is over. The alarms should sound if the stock goes below the gapping up level at around $130. Our indicators give positive view of SKX.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com are 4 Buy and 4 Outperform.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. SKX’s annual EPS for the last 5 years were 2.78, -1.39, 0.19, 1.08, and 2.72 this type of earnings action is favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. SKX’s Total Debt/Equity of 8.69 is below the required maximum, and it is below the industry average of 36.4.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. SKX’s EPS growth for this quarter relative to the same quarter a year earlier is 128%, above our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. SKX’s annual earnings growth rate over the past five years is 18.56%, above our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.