It is Time to Add Skechers to Your Portfolio - Analyst Blog

Is Skechers USA Inc. SKX part of your portfolio? If not, then it is right time to add the stock to your portfolio as it currently looks very promising and the underlying factors are capable of carrying the momentum further. The stock holds a Zacks Rank #1 (Strong Buy) and has surged roughly 35% year-to-date, demonstrating its inherent strength. We believe it could prove to be a solid bet for investors.

Skechers' primary strength is its earnings surprise history. The company has outperformed the Zacks Consensus Estimates in 6 out of the past 9 quarters. In the last four quarters, this developer and distributor of footwear for men, women and children has topped the Zacks Consensus Estimate by an average of 125.8%, including a whooping earnings surprise of 84.9% in first-quarter 2014.

We remain impressed with the year-over-year growth in the top and bottom lines that Skechers witnessed during the first quarter of 2014. The improvement was due to strong sales across its domestic and international wholesale operations, and company-owned retail businesses.

The first-quarter 2014 earnings of 61 cents a share easily beat the Zacks Consensus Estimate of 33 cents, and rose over fourfold from 13 cents in the prior-year quarter. The improved results were owing to strong top-line growth, effective cost management and a shift in a portion of the advertising expenses to the second quarter as Easter fell in April this year.

Increased demand for products, product innovation across multiple categories and healthy performance across all revenue channels led to a 21% rise in revenue to $546.5 million in the quarter, which surpassed the Zacks Consensus Estimate of $507 million.

The domestic wholesale business marked a revenue increase of 20.7%, international business revenue surged 26.3% and retail business sales, on a combined basis, grew 15.9%.

With increased focus on the new line of products, cost containment, inventory management, a global distribution platform, and backlogs, the company is confident of sustaining the momentum throughout 2014. Skechers, through its distribution networks, subsidiaries and joint ventures, is poised to expand its global reach in the footwear market with demand remaining strong.

Skechers continues to offer a diversified portfolio of brands that include a wide range of fashion, athletic, non-athletic, and work footwear at compelling prices. We believe that this multi-brand strategy enables the company to roll out new products without cannibalizing its existing brands and helps to expand the targeted demographic profile of customers.

Other Stocks that Warrant a Look

Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance are Carter's, Inc. CRI, Iconix Brand Group, Inc. ICON and Rocky Brands, Inc. RCKY, all carrying a Zacks Rank #2 (Buy).

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