Why Adding Skechers (SKX) May Hurt Your Portfolio's Return

Adding profitable and recommended stocks to your portfolio is a wise decision. Also, disposing of underperforming stocks is equally important in order to safeguard your portfolio returns. Skechers U.S.A., Inc. (NYSE:SKX) is one such stock which should not be part of your portfolio, at least for the time being.

This Zacks Rank #4 (Sell) stock, which closed at $26.40 on the last trading day, has declined nearly 17.1% in the past six months. Additionally, it has underperformed the Zacks Categorized Apparel industry, which fell 7.9% over the same time frame. Let’s explore more to find out what’s weighing upon investors’ sentiments.

Skechers continued with its dismal performance in 2016, with its lackluster third-quarter figures. Both the company’s top and bottom lines missed estimates and earnings fell on a year-over-year basis. This footwear retailer witnessed negative earnings surprises of 5.9% and 8.7% in the second and third quarters, respectively. On the other hand, its revenues missed the estimate for the second straight quarter.

Skechers’ earnings were impacted by foreign currency headwinds, rise in general and administrative expenses and higher effective tax rate. In addition, the company’s domestic wholesale business remained a drag in the quarter. Further, the rate of sales growth in the third quarter (up 10.1%) and the second quarter (up 9.7%) declined significantly from the first quarter (up 27.4%). (Read more: Skechers Misses on Q3 Earnings & Sales; Stock Down)

Consequently, management issued a bleak outlook for fourth-quarter 2016. It now projects net sales in the band of $710–$735 million.

Moreover, the lower-than-expected results, along with a soft projection, triggered a downtrend in estimates. Over the past 60 days, the Zacks Consensus Estimate of $1.61 and $1.68 for 2016 and 2017 decreased 16 cents and 24 cents, respectively. Further, the Zacks Consensus Estimate of 8 cents for fourth-quarter 2016 declined by 13 cents over the same time frame.

Additionally, Skechers faces intense competition in the footwear industry from big guns like NIKE, Inc. (NYSE:NKE) , Adidas (DE:ADSGN), Puma on several attributes such as style, price, quality, comfort and brand name.

Nevertheless, management is focusing on new line of products, cost-containment efforts, inventory management and global distribution platform, which may prove to be the game changer, going forward.

Stocks That Warrant a Look

Some better-ranked stocks in the same industry include Steven Madden, Ltd. (NASDAQ:SHOO) and Caleres, Inc. (NYSE:CAL) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Steven Madden, with a long-term earnings growth rate of 13.5%, has gained 25.4% year to date.

Caleres, with a long-term earnings growth rate of 11%, has jumped nearly 30.2% in the past six months.

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