Sketchers (SKX) Focuses On Sustaining Growth: Time To Hold?

With greater emphasis on introducing new products, containing costs, effective inventory management and establishing a global distribution platform, Skechers U.S.A., Inc. (NYSE:SKX) has sincerely been acting toward sustaining growth. Further, the company continues to offer a diversified portfolio of brands that includes a wide range of fashion, athletic, non-athletic, and work footwear at compelling prices. We observed that the stock has outpaced the Zacks categorized Shoe & Retail Apparel industry in the last six months by approximately 7.2%, compared to the industry’s growth of 5.2%.

Skechers has made a sharp come back in the first quarter of 2017, after posting negative earnings surprises in three previous quarters. Net sales of Skechers have also beaten estimates for two straight quarters now, owing to the strong performance at the international wholesale business and company-owned global retail operations. Sales growth was also driven by the sturdy performance of the domestic eCommerce business.

Management is focused on product innovation, additional store openings and increasing distribution channels by entering into international distribution agreements to boost sales and profitability. 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. Management now projects second-quarter 2017 net sales in the band of $950–$975 billion compared with $877.8 million reported in the prior-year quarter.

Although this Zacks Rank #3 (Hold) stock has performed well in comparison with the previous quarter, the year-over-year performance reveals a less satisfying picture. The company’s bottom-line has continued to decline for the fourth successive quarter, with negative impacts emerging out of higher operating expenses and foreign currency translation upon gross margins. Operating income came in at $124.4 million, down 10.2% from the prior-year quarter, due to enhanced expansion costs.

Moreover, the soft second-quarter 2017 earnings per share projection also raise concerns. Management now anticipates earnings per share in the range of 42–47 cents compared with 48 cents delivered in the year-ago period. Consequently, the Zacks Consensus Estimate for the quarter has declined by 5 cents to 45 cents in the past 30 days.

Another concern for Skechers’ business model is fashion obsolescence, which involves a sustained focus on product and design innovation.

Stocks that Warrant a Look

Investors may consider better-ranked stocks such as GOPRO, INC. (NASDAQ:GPRO) , Hasbro, Inc. (NASDAQ:HAS) and HILTON WORLDWIDE HOLDINGS INC. (NYSE:HLT) , all carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GOPRO delivered an average positive earnings surprise of 4.2% in the trailing four quarters and has a long term growth rate of 15%.

Hasbro delivered an average positive earnings surprise of 16.5% in the preceding four quarters and has a long term growth rate of 10%.

HILTON delivered an average positive earnings surprise of 9.9% in the past four quarters and has a long term growth rate of 5.8%.

5 Trades Could Profit "Big-League" from Trump Policies

If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.

Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>.