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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


April 9th 2010 Skechers
NYSE Symbol: SKX
Industry: Shoes
Price as of 4/9: $38.76

It's the start of the second quarter and investors are awaiting earnings season which starts next week. All indications are that the earnings will be great, but the big question is how much has been priced into the market? We'll find out next week. Typically, this time of year is the dawn for the retail season. Retailers usually perform well from Spring into Summer. This year has been no different as the industry reported spectacular same store sales just this week. Plenty of retailers are performing great including this weeks' featured stock. The stock of the week is Skechers. Skechers engages in the design, development, marketing, and distribution of footwear for men, women, and children in the United States and internationally. The company has been firing on all cylinders thanks in part to a new sneaker called the Shape-Up. The company has hired Hall of Fame great, Joe Montana to sell their new popular shoe. Thanks in part to the new shoe the company has reported great numbers, ratcheting up earnings estimates by 50%. The stock has reacted to these great numbers, tripling in price in the last year. Similar to Metlife, which we have featured a number of times, the PE of Skechers has remained constant even as the stock price continues to move higher thanks to upside earnings revisions. Skechers is not a conservative investment, but growth investors looking for a retailer performing well at the same time when the economy is starting to accelerate should take a look at Skechers.
The good news for Skechers in 2010 started in January when they guided fourth quarter revenue in excess of $385 million compared to $298 million last year and First Call consensus of $321.6 million. Earnings are now expected to be in excess of 50 cents, compared with a net loss of 44 cents in the fourth quarter of 2008, and consensus estimates of 19 cents. Then in February, Skechers reported earnings beating estimates by 6 cents with revenue in-line with estimates. Earnings came in at 58 cents up significantly from the initial estimates of just 19 cents a month before.
The new shoe called the Shape Up has a unique curved sole designed to burn more calories, activate core muscles, and reduce joint stress. So far people like the shoe, generating plenty of sales. Management remains bullish regarding their outlook making positive comments about growth for 2010. Skechers backlog is up 40% as of December 31, 2009 over the prior year. Combined domestic and international store comps increased 17.4% for the fourth quarter.
Thanks to upward revisions to earnings, the stock remains cheap. Currently the stock is trading for 14.7 times this years earnings and 13 times next years earnings estimates. The stock also trades for 1.22 times sales and 2.34 times book value of $16 a share. The company has minimal debt with plenty of cash. The company does not provide a dividend so the stock is for growth investors. With earnings and sales continuing to grow at a 30% clip, Skechers looks to be well positioned for the economic rebound.