Skechers Overseas Investments Begin To Pay Off; Susquehanna Says Buy The Stock

Susquehanna Financial Group issued a Buy call on Skechers USA Inc SKX, premised on exceptional growth in international geographies and healthy domestic business. The firm said continued top-line strength coupled with slowing investment growth sets Skechers for an earnings inflection in 2018.

As such, the firm maintains a Positive rating on the shares of Skechers and raised its price target from $34 to $38.

At time of writing, Skechers shares were soaring 36.70 percent to $32.85.

Analyst Sam Poser said the company's third-quarter results prove that it is not a one-trick pony it once was. The analyst noted that the company handily beat third-quarter revenue, gross margin and overall earnings per share expectations while keeping SG&A well controlled.

The analyst said the diversity of Skecher's revenue streams continues to grow across geographies and products, leading to exceptional top-line performance despite the challenges in the U.S. marketplace.

Susquehanna noted that the company sees China as a $1 billion opportunity in two to three years, becoming as large as or larger than the U.S. The firm sees this as a realistic assumption, given the brand strength in China and the investments.

See also: Jim Cramer Advises His Viewers On Starbucks, Manitowoc And Skechers

While Skechers' international business rose 25.7 percent and subsidiary and joint venture business climbed 31.4 percent in the quarter, the firm noted that its domestic business was up in mid-single digits.

Additionally, the firm noted that the strength was broad based, both from a category and platform perspective.

Skechers' overseas investments are proving to be effective, the firm said. The firm added that the fourth-quarter of 2017 will likely mark an inflection point for SG&A as Korea investments will be lapped.

"Sales benefits from accelerated investments in recent quarters are materializing right at the time that investment growth is beginning to normalize (JV/China investments normalize), creating a favorable set-up for 2018," the firm said.

Susquehanna also said it believes SG&A will begin to lever in 2018, in line with the company's expectations. The 190-basis-point expansion in gross margins in the third quarter, according to the firm, was achieved on the back of a combination of geographic mix, forex and the U.K. pricing.