Favorable Setup, Attractive Valuation Keeps Cowen Bullish On Skechers

John Kernan of Cowen believes shares of Skechers USA Inc SKX are "too cheap" and should be bought following the company's first-quarter results.

Kernan noted that Skechers' first-quarter sales growth of 9.6 percent came in ahead of consensus estimate of 8.5 percent, partly due to an 11.6 percent growth in international wholesale. Of particular note, global same-store sales grew 2.9 percent while international same-store sales grew 8.2 percent which outpaced the domestic same-store sales growth of 1.5 percent.

The strong report prompted the analyst to maintain an Outperform rating on Skechers' stock with an unchanged $35 price target.

So Now What?

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Kernan previously estimated Skechers' international wholesale revenue would account for a higher percentage of the company's total sales. This is what happened in the first quarter when international wholesale revenue accounted for 46 percent of total sales, up from 43 percent in the same quarter a year ago.

Looking forward, the analyst expects a similar growth rate in international wholesale sales after a 40 percent growth in China and India and as much as 85 percent in other countries. The company also sees a mid-20 percent growth rate in Korea and Latin America.

Kernan also highlighted that the continued shift to international wholesale sales will result in a margin expansion and international gross, operating and net margins are higher versus the domestic business.

Also, the analyst believes that management's second-quarter guidance, which calls for an 8–11 percent sales growth could prove to be a conservative estimate given strong global backlogs, a favorable Easter holiday shift and the new product line launch called YOU by Skechers.

At last check, shares of Skechers were down 2.29 percent at $25.55.