Skechers - Good Company, But Too Expensive For Value Investors (Podcast)

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About: Skechers USA Inc. (SKX)
by: Value Investor TV
Summary

Skechers is an American lifestyle and performance footwear company.

Its gross margin is improving with more direct to consumer channels, such as its own retail stores and e-commerce.

Its potential in the international market, especially in China, remains strong despite the recent U.S.-China tariff talk.

It is a well-run company with potential, but remains expensive for disciplined value investors.

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In episode 35 of our podcast, we analyze Skechers (SKX). It is an American lifestyle and performance footwear company, operating in more than 170 countries. It has many things going for it.

Right off the bat, the company's top line is growing steadily. It has positioned itself to attack China and the greater Asian market by forging joint ventures, building its retail presence, and opening distribution centers. It has also been opportunistically conducting a marketing campaign by enlisting influencers and testing new designs in trend-setting countries like Korea and Japan.

But perhaps more important than growing the top line in and of itself is growing revenue that translates into earnings. The company has been focusing on higher margins by expanding its direct-to-consumer channels, such as its own retail stores (as opposed to wholesale) and e-commerce.

Low costs and brands are Skechers' competitive advantages, but not strong ones. A customer might choose Skechers for its low price tag or its brand name. But he or she can switch to its competitors like New Balance or Reebok pretty painlessly. It's not like a bank, for example, where once you entrench yourself into a system it becomes extremely hard to pull out.

In terms of the company's management, its CEO and chairman is also one of the founders. Robert Greenberg has been with the company since the inception and in aggregate owns the majority of the voting shares. While this could led to a tyrannical leadership, we find comfort in the fact that his net worth and legacy are directly coupled to the lasting performance of the company. Plus, its long operating history shows that's the case.

With the aforementioned facts laid out, we calculate Skechers' intrinsic value in the podcast. Skechers is a good company with a strong future ahead. However, for disciplined value investors like us, the share price at the time of the writing (~$27) is above our margin of safety threshold.

Be sure to type in the ticker "SKX" in the Value Investor Database to see the company's financial statements dating back to 1996.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.