Skechers Charges Ahead in Q4

Analysts lauded Skechers USA Inc. for its robust fourth-quarter result, which bested Wall Street’s forecasts and drove shares to a 52-week high last week.

Jeff Van Sinderen, an analyst at B. Riley & Co., said the company’s aggressive focus on innovation across all product categories helped strengthen Skechers’ performance over the quarter, adding that the business could benefit further come spring.

“The thing that surprised the market with this result is that they performed fantastically despite traffic being horrible, the weather being horrible and the retail environment being horrible,” he said. “It was the perfect storm, and these guys rose out of it victorious.”

On a conference call with investors and analysts, Skechers CFO David Weinberg said, “The sales momentum we experienced in the fourth quarter was quite an achievement when considering the soft U.S. retail environment in December.” He noted that the sales increase for the period was across all categories and distribution channels, with double-digit growth in Skechers’ domestic wholesale and company-owned retail stores.

Weinberg said demand for the brand’s GoWalk and running footwear remained strong over the quarter, while sales of boots and lined footwear were higher due to the cold weather in the U.S.
The Manhattan Beach, Calif.-based firm posted diluted earnings per share of 28 cents for the fourth quarter, compared with 8 cents in fiscal 2012.

The results were dramatically higher than analysts’ consensus forecast for 16 cents. Skechers posted revenues of $450.7 million for the quarter, versus $395.6 in the year-ago period, beating analysts’ consensus forecasts for $448.6 million.

Of note, Weinberg said, was the solid performance of Skechers’ domestic wholesale business, which grew 16 percent in the fourth quarter. “We believe we achieved this success despite the unseasonably cold weather because of our diverse product offering, including boots and lined footwear for the colder areas, and our sport product, which performed in the unusually warm weather in the West, as well as other regions,” he said on the conference call.

While the recent winter storms and unfavorable cold weather continue to weigh on U.S. retail sales, analysts said Skechers’ current earnings momentum could improve further when spring breaks.

“This isn’t The North Face or a cold-weather footwear company. Out of the people that did show up at malls and stores in general this winter, Skechers got a lot more customers to buy in their stores,” Van Sinderen said, adding that the business should accelerate when the weather improves.

Sam Poser, an analyst at Sterne Agee, lifted his full-year price target for the stock to $43, from $40, due to the better-than-expected result, and said he predicts the company could see big benefits if the U.S. experiences an early spring. “Management appears very comfortable with [The Street’s guidance for the first quarter], even if the weather remains lousy. If the weather breaks in March, there is likely upside to estimates,” he said.

With a sharpened focus on a new line of products, cost-containment efforts, inventory management and strong backlogs at year-end, analysts are confident Skechers will be able to sustain its current growth momentum through 2014.

“This management team is delivering on the numbers, and they are executing very well. Their product keeps getting better and more diversified, and they are developing and delivering product that is resonating with the consumer,” Van Sinderen said. “They are setting themselves up for a stellar 2014.”