Skechers USA (SKX) designs and manufactures athletic and casual apparel, footwear, and accessories. The company is headquartered in Manhattan Beach, California, and employs 18,000 people. In the last fiscal year, the company sold 263 million pairs of shoes.
Investment Thesis
Skechers is a leader in the industry in terms of sales dynamics, which is seen as a more important factor than relatively low profitability figures. The company sells its products in 180 countries worldwide, both directly and through representatives. In the latest quarter, direct sales increased by 9.2% year-over-year, while wholesale sales rose by 5.5% year-over-year. The retail network has grown by 99 stores since the beginning of the year, reaching 5,267 locations. Management is showing strong revenue growth in Q3 and for the year, forecasting an increase of around 11%. The company has also announced a $1 billion share buyback program.
Sales Dynamics
In 2005, Skechers’ revenue first surpassed $1 billion. By 2023, revenue reached $8 billion. In 2020, due to COVID, there was a slight decline in sales. In Q2 of this year, revenue increased by 7.2% year-over-year, reaching a record $2.16 billion, with organic sales at 8.7% year-over-year.
Profitability
Skechers’ gross margin is above 50%, placing it among the leaders in the market. The operating margin is 10%. The net margin based on unadjusted profit is 6.8%, which is significantly lower than that of Nike and Crocs, but on par with Birkenstock.
Key Multiples
Skechers shares are trading at strictly lower multiples, indicating undervaluation in light of positive investor sentiment and consistent growth rates. The forward P/E ratio is 12 compared to 20 for Nike, while the P/B ratio is 2.4 compared to 7.7 for Nike, even though Nike's return on equity is three times higher.
Price Dynamics
The company went public in 2000, and since then, its stock price has increased 15-fold, or 10-fold when adjusted for stock splits. The current market capitalization is $9.5 billion, making it the fifth largest footwear manufacturer in the world and the third largest in the U.S. Currently, the stock is trading at the beginning of the year, having corrected 18% from its absolute peak.
Technical Picture and Analyst Rating
The stock price has bounced off its annual low and is near the 200-day moving average. 95% of the shares are held by large institutional firms. The consensus forecast for Skechers stock is $81, indicating a growth potential of 30%.
Target price for SKX stock: $75.