Q4 Earnings Preview for SKX, KSWS and TBL

Footwear firms reporting their fourth-quarter results next week are expected to beat estimates, said analysts, as the latest selling season was likely driven by strong sell-throughs and generally positive margin dynamics.
 
Despite concerns over sustainability of growth against the current macro backdrop, firms including K-Swiss Inc., The Timberland Co. and Skechers USA Inc. should look to margin growth by cutting selling, administrative and general expenses.
 
K-Swiss, which reports its results next Thursday, is expected to continue its turnaround with accelerated momentum in futures orders.
 
As of the third quarter, total backlogs for the next six months were up almost 18 percent, representing the first time in more than five years that six-month futures have been positive, Sterne Agee analysts wrote in a research note.
 
“K-Swiss continues to aggressively market the Blades and Tubes running shoes, as well as investing in the triathlon business. We expect these investments will begin to pay off this quarter and into 2011,” the note added. “In addition … the recently acquired Palladium group should see solid double-digit growth in 2011 and going forward.”
 
Timberland, which also reports Thursday, is Susquehanna Financial’s “favorite pick in our branded coverage universe from a risk/reward perspective.”
 
The firm’s analysts wrote in a research note, “We believe continued momentum in key categories [of] Earthkeepers [and] Mountain Athletics, and favorable weather in the U.S. and Europe drove top-line results. Continued share repurchase activity should also add incremental bottom-line growth.”
 
Analysts also are looking for expanded door growth in fiscal-year 2011, and are expecting the company to earn 51 cents a share on revenue of $411.6 million, as polled by Yahoo Finance.
 
Some concerns remain around Skechers, however. BB&T Capital Markets analyst Scott Krasik warned in a research note that excess toning inventory may still impact gross margin at the firm.
 
“Conversations with footwear retailers indicate that second-generation toning product is still selling, [but] the issue continues to surround the excess first-generation inventory,” Krasik wrote. “[However], Skechers’ other businesses seem to be positive, [while] kids’ [and] new marketing programs should drive further growth this year.”  

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