Skechers USA: Earnings Preview

Feb.13.12 | About: Skechers USA (SKX)

Skechers USA Inc. (NYSE:SKX), the designer, marketer and distributor of footwear, is slated to report its fourth-quarter 2011 financial results on February 15, 2012. The current Zacks Consensus Estimate for the quarter reflects a loss of 23 cents per share, representing a sharp decline from earnings of 7 cents in the prior-year quarter. Revenue, as per the Zacks Consensus Estimate, is $324 million.

Third-Quarter Synopsis

Skechers delivered earnings of 7 cents a share, down approximately 90% from the prior-year period as weak top-line performance weighed upon its bottom-line results. However, the quarterly earnings fared better than the Zacks Consensus Estimate of one cent a share.

However, including one-time items, Skechers delivered earnings of 17 cents a share.

Skechers, which competes with Deckers Outdoor Corporation (NYSE:DECK), reported a 25.7% year over year drop in total net sales to $412.2 million, reflecting lower sales of high priced toning shoes and sluggish performances across other footwear lines. Moreover, the reported revenue also came below the Zacks Consensus Estimate of $465 million.

Agreement of Estimate Revisions

Of the 5 analysts covering the stock, 2 revised the estimates downward in the last 30 days, while none moved in the opposite direction.

In the last 7 days, none of the analysts revised the estimates in either direction.

Magnitude of Estimate Revisions

Following the estimate revisions, the Zacks Consensus estimate of loss per share widened by 5 cents over the last 30 days.

The downward revisions support the view that revenue growth will remain muted in the coming quarters as there is lack of near-term catalysts to drive sales. Further, the company’s aggressive inventory offloading stance in order to right-size its inventory coupled with lower average selling price is taking a toll on its margins.

Mixed Earnings Surprise History

With respect to earnings surprises, Skechers has topped as well as missed the Zacks Consensus Estimate over the last four quarters in the range of negative 53.3% to a positive 600%. The average remained at positive 133.9%, indicating that the company has surpassed the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.

Our Take

The company is trying to reposition itself to drive growth by focusing on inventory optimization and cost-containment efforts. Moreover, in our opinion, the company’s international business provides an enormous scope for growth.

Further, Skechers’ sustained focus on new line of products, opening of new retail stores and distribution channels, and the development of new international distribution agreements (in India and Mexico), should drive profitability.

However, we remain on the sidelines considering the company’s weak top-line performances and continued margin pressure through lower average selling price.

Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, Skechers has a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.

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