Skechers U.S.A. Inc.

Skechers U.S.A. Inc. (NYSE: SKX) creates and distributes Skechers-branded lifestyle footwear for men, women, and children, as well as performance and work footwear for men and women under the Skechers Performance and Skechers Work brands. Domestic Wholesale, International Wholesale, and Direct-to-Consumer are the company's segments.

SKX Details

Key Highlights and relevant updates

• Skechers Elite Runner Edward Cheserek Wins Second Straight Carlsbad 5000: On Sunday, May 22, Skechers celebrated Edward Cheserek's second consecutive triumph in the 2022 Carlsbad 5000 in Carlsbad, CA, while wearing Skechers Speed Elite sneakers. Skechers Performance footwear has achieved recognition across the running world and received various honors within the footwear business since its introduction with the initial model of Skechers GO RUN worn by Meb Keflezighi in 2012.
• Q1 FY22 Financial results: Skechers released its first-quarter financial results on April 26, 2022, with first-quarter sales breaking a new quarterly sales record for the firm and highlighting the brand's broad global appeal and the team's focus on effectively negotiating supply chain restrictions.

Q1 FY22 financial results

• Skechers' first-quarter sales of nearly USD 1.8 billion set a new quarterly sales record, with first-quarter sales up 26.8% as a combination of a 28.7% rise in domestic sales and a 25.5 percent growth in overseas sales, mostly driven by wholesale sales strength. Wholesale increased by 32.7 percent, while Direct-to-Consumer increased by 15.7 percent. Sales climbed by 28.7% in constant currency terms.
• The first quarter of 2022 had gross earnings of USD 824. 2 million, up from USD 685.7 million the previous year. On the other hand, gross margin fell by 250 basis points to 45.3 percent, owing to higher per unit freight costs somewhat offset by higher average selling prices.
• Operating expenditures rose USD 120.3 million, or 22.8 percent, but as a proportion of sales, they fell 120 basis points to 35.6 percent, down from 36.8 percent the year before. Due to increasing worldwide demand creation expenditures, selling expenses climbed USD 16.9 million, or 18.5 percent. Due to increasing volume-driven labor and warehousing and distribution expenditures, general and administrative expenses climbed by USD 103.4 million, or 23.7 percent.
• Operating earnings grew USD 18.2 million, or 11.6 percent, to USD 175.9 million, while net earnings were USD 121.2 million and diluted earnings per share were USD 0.77, up 22.2 percent from the previous year.

Balance sheet position

• Cash, cash equivalents, and investments totaled USD 819.9 million, down USD 220.6 million, or 21.2 percent, from December 31, 2021, owing to higher accounts receivable from wholesale sales, particularly in the Americas, while long-term debts were almost unchanged at USD 265.30 million at the end of the quarter.
• Inventory was USD 1.45 billion, down USD 21.5 million or 1.5 percent from the previous year's end. Because some supply chain limitations had improved, the minor drop in inventory reflected reduced product in transit levels.

Other Key Financial Information

• The Company spent USD 25.0 million in the first quarter to repurchase approximately 652,000 shares of its Class A common stock. The Company's share repurchase program has about USD 475.0 million available as of March 31, 2022.

Outlook

The Company expects sales of between USD 1.75 billion and USD 1.80 billion in the second quarter of 2022, with diluted earnings per share of between USD 0.50 and USD 0.55. Furthermore, the Company expects sales of between USD 7.2 billion and USD 7.4 billion in the fiscal year 2022, with diluted profits per share of between USD 2.75 and USD 2.95.

Key Risks

• Competition Risk: The company operates in a highly competitive footwear sector, where it competes directly with larger, better funded, and technologically sophisticated manufacturing and marketing firms. If this trend continues, the firm may face pricing pressure as well as a loss of market share, both of which might damage its bottom line.
• Foreign exchange risk: The company's sales decreased by 1.9 percent in the first quarter due to currency fluctuations, as previously stated, the company's sales increased by 26.8%, which would have been 28.7% if currency fluctuations had not occurred.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

Over the past six months, SKX's share price has corrected by 25.20%. The stock is currently leaning towards the lower end of its 52-week range of USD 33.50 to USD 55.87. We have valued the stock using the EV/Sales multiple-based relative valuation method and arrived at a target price of USD 43.56. We believe that the company is trading at a discount from its peer's average. Further, given the company’s strong fundamentals, a share repurchase program, and a strong cash position gives bullish estimates for the upcoming near future.

Considering the strong fundamentals, robust top-line results, associated risks, positive outlook, and current valuation, we give a "Buy" recommendation on the stock at the current price of USD 36.68 up 2.88%, as of May 25, 2022, at 08:20 AM PDT.

One Year Technical Chart, as of May 25, 2022, at 08:20 AM PDT. Data Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

 Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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