Skins, Inc.: The Next Great Shoe Company?

The global shoe market is considered by some to be a zero sum game with fierce competition. Within this game however, there is room for innovation, and when innovation attracts customers, incredible growth occurs. Look no further than Deckers Outdoor (DECK) and Crocs (CROX) recently, Iconix Brand (ICON) and Sky Shoes before, and Nike (NKE) and Reebok still further back, to understand that new companies can and do pop up with a better shoe. When that happens, consumers fall in love, sales grow exponentially, the company has difficulty keeping up with demand, and the stock usually pays off incredibly well, considering it’s a low tech, easy to understand retail play.

Having ridden the ride of CROX, one may decide to go looking for that next shoe company, the one with the potential to make triple digit gains while keeping up with demand. Make no mistake, growth of sales drive the stock price in Shoes like no other industry. This isn’t rocket science; make a better shoe and you’ve got a hot stock…. Find a shoe company before everyone else knows it’s better, and well, you may have a lottery ticket.

One such company is very controversial this last year; trading OTC on the BB, it’s anything but a sure bet. Highly speculative and highly volatile, Skins, Inc. (SKNN.OB) could be that next great shoe company. Recent trading in the stock has taken the per share price from $0.76/share on May 24th to its present level just over $2.00 45 days later. That leads the prudent investor to ask two questions.

First, why was the stock $0.76 to begin with? Looking over the company’s flashy marketing material, the company certainly has a handle on basic fashion advertising. It reminds one of the Abercrombie appeal (ANF): a naked woman wearing only a shoe. Watching their marketing video with the trendy pumping music and the explanation of just what a “Skin” is sort of explains the product concept. These images and the website execution are catchy and make one question even more why the stock dropped so hard to $0.76?

Unfortunately the company has had its fair share of controversy. After PR around Christmas that the company would have its fashion setting “Skins” ( the interchangeable slip on exteriors which form the shoe around a “one time buy” bone-fit for your personal foot size) by Italian manufacturers, investors sent the stock to a towering $3.05/share price, a lofty price for a company without a single product in store. That was a market cap of $112 Million before a single shoe shipped. And there lay the rub. Shortly thereafter the company announced that a delay was holding back deliveries to the selected retailers for the first roll out. It has been attributed to the need of the company to find the right quality vendor to supply the relatively pricey Skins and Bones. Subsequently, the stock rebounded in the spring at a Market Release party in Posh New York settings, as captured by this BBC You Tube video, which revised investor interest in the company.

Things looked great and shareholders dreams of the lottery ticket skyrocketing dashed as the company again delayed delivery and the stock crashed down to the $0.76. Repeated initial delivery problems have led some investors to question whether or not this stock is a cooked up boiler room story. Disappointed shareholders believing SKNN.OB could become the next “hot shoe” were giving up on the company, calling it a scam, and doubting anyone would ever buy a $200 sneaker. All there really was tangible before were flashy videos on You Tube, the marketing website, and a few supposed worn prototypes seen at trade shows in the past. For good reason many disappointed shareholders left the stock, but a new crop of investors has been getting back in as evidence on the SportieLA and Footwear Etc sites suggest that shipment are in route (due early August, according to Investor Relations) and at least for SportieLA, sales are occurring before anyone has even seen the actual shoe. A note posted on the SportieLA customer service page revealed to the savvy sleuths that the trendy LA retailer was actually starting to sell out of its initial shipment allotment.

The note posted July 11th coincided with significant action in the stock, as it soared $0.43/share to $2.10 on heavy volume. Looking over the additional drop menus of the SportieLA website also reveals that additional sizes are being sold out in the Pre-Order phase. For instance, the women’s April Black and Men’s Black Harry, both Skins, are each reported out of stock in several common sizes.

SportieLA is reported to be an early marketing partner for the New York based Skins Inc, so their early sales may be driving early buzz, leading to the pre-order sell outs. Examination of the other retailer, Footwear Etc (in the bay area), turns up no models out of stock at pre-order, so one could assume that the SportieLA marketing is creating the sales. Much rides upon these early LA Sales to try and create a trendy wave, which would be necessary absent substantial marketing the company cannot afford due to a low cash flow on hand, to have the shoe catch on at subsequent future retailers. While encouraging, it still is highly speculative, as the shoes have yet to arrive in store.

Is the shoe real? That’s a very good question. It will be featured at the World Shoe Association “Collections at WSA Luxury and Designer Shoe Showcase” July 30th and August 1st.

Coincidentally, the first stores could finally receive their first shipments by this point and the company may be looking to sign on additional retailers to handle the trendy new line. Confirmation of the shoe shipment, and availability in store, could prove to be an explosive catalyst many investors have been waiting for and many skeptical formers owners could be invited to get back in to the name for a long ride. It's something each shareholder will be closely looking for confirmation on.

Can the stock sustain its recent 100% gains? Not very likely, unless of course the company ships its shoes and sales at SportieLA among others continue as strong as initially seen on pre-order. However, if it catches on, getting in at such a low buy in price, with the potential to be the next hot high flying shoe stock, is a "lottery ticket" this investor is willing to hold long, though I strongly suggest you do your own due diligence.

Disclosure: Author has a long position in SKNN.OB

SKNN 1-yr chart

Comments

[Earning REady:]

Excellent read. Buying Sknn.ob at $3.00 with not a single pair of shoes sold in stores would have less odds than winning the lotto. Like you I just waited til I thought the company had disappointed shareholders and finally had a product that they could turn a profit on. Bought recently at their all time low stock price. Perhaps a quarter early as I do not think Q2 will have significant sales numbers but did not want to sit out knowing at the end of this month every whos who of footwear will be seeing touching feeling and buying their line for fall and winter. Thought I better get in before the fashion magazines pump this as the shoe to own.
PS did not buy until I could actually physically buy a pair of shoes in the store. Being a value investor this is one of only a handful of spec stocks I ever will purchase in my lifetime.

2008 Jul 08 08:46 PM