Skechers U.S.A. (SKX)

• Article
• Discussion
• Edit
• History
• Bookmark

Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment Bears: Reasons To Sell Feeling Bearish? Be the first to explain why this would make a poor investment Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Scott Thorn Sean Hinton Related Articles Adidas AG (ADDYY) China Crocs (CROX) Economy of scale Gross Profit

Skechers has a stated focus on growing its company-owned retail business, and it increased its number of stores by 37 in 2007.^[4] It also plans to open 25-30 new stores during 2008.^[5] By expanding its retail sales business, Skechers hopes to boost profit margins by bypassing traditional retailers and charging customers the full retail (as opposed to wholesale) price. If successful, this will also decrease the significance of Skecher's five largest customers, which accounted for 25% of all sales in 2007.^[6]

[edit] Company Overview

Skechers USA makes money by selling its footwear to department stores and other retailers, or directly to the consumer via its website or in its own stores. The company produces footwear of all kinds for men, women, and children, though the company's core consumers are 12- to 24-year-olds.^[7] Skechers makes an effort to maintain a trendy and stylish brand image by using celebrity-driven advertising.^[8]

In 2007, Skechers achieved record revenues of $1.4 billion, a 15.7% increase over 2006 revenues of $1.2 billion.^[9] In fact, sales have increased every year since 2003. Meanwhile, overall expenses have remained relatively constant as a percentage of sales. This has let net income also increase every year from -$11.9 million in 2003 to $75.7 million in 2007. Skechers reports sales and income in four segments: domestic wholesale, international wholesale, retail, and e-commerce.^[10] From 2005-2007, net sales and gross profit for each of these four segments have grown each year.

Within each of these reported segments, the company sells two different types of brands: Skechers brands and Fashion and Street brands. Skechers brands include: Skechers Casual, Skechers Kids, Skechers Sport, and Skechers Work. These brands are generally marketed together under the overall Skechers brand.

The Fashion and Street brands are marketed individually and separately from Skechers. These brands include: Zoo York, Mark Nason, and SoHo Lab. The reason they are marketed separately is because each of these brands has a distinct target audience. For example, Zoo York targets skateboarders and those who embrace skate fashion; SoHo Lab targets trend-conscious 18 to 34 year-olds.^[11]

Skechers Financial Statements^[12]

Skechers 10-K^[13]

[edit] Trends and Forces

[edit] Skechers relies on a small group of customers for 25% of sales

In 2007, Skechers' top five customers accounted for 25% of net sales. This number was 24.9% and 25.4% in 2006 and 2005, respectively.^[14] These clients are not obligated to purchase products from Skechers, and the loss of one of them could significantly reduce the company's sales. The company's plans to expand its retail business will decrease its dependency on these customers and mitigate some of the risk they pose to sales. As Skechers gains more sales from its own stores, these five customers will become less important to the welfare of the company.

Skechers 10-K^[15]

[edit] Certain investors hold the majority of the stock, which could affect issues put to a shareholder vote

At the end of 2007, Robert Greenberg (Chairman and CEO) owned almost 80% of class B common stock, and his family effectively owned the rest. Because class B stockholders are allowed 10 votes per share, Mr. Greenberg alone holds 62.1% of total votes. Including his family's voting power, he controls 79.6% of all votes.^[16] Therefore, any issue that is put to vote will be significantly influenced by Mr. Greenberg, regardless of whether or not his views are in line with the rest of the shareholders.

[edit] Skechers, already with a strong presence outside the US, has a stated goal to continue expanding internationally

Skechers, which already operates in more than 100 countries, has grown revenue from its international wholesale business by more than $100 million over the past three years ($163.5 million in 2005 to $267.7 million in 2007). The company will continue to expand internationally, in part to take advantage of rapid economic growth in certain parts of the world. For example, Skechers plans to expand its distribution network in China via a joint venture in 2008, which it expects to generate between $10-$15 million more in revenue.^[17]

[edit] Competition and Market Share

For comparison purposes, Skechers has revenues of $1.4 billion. It should be noted that Skechers produces a very wide range of footwear and that it does not compete with each of these companies in the same way. For example, Skechers competes with Wolverine World Wide (WWW) mainly in the casual and work footwear categories, but Wolverine does not make athletic footwear as Skechers does.

• Nike (NKE): 2007 revenues - $16.3 billion. Nike competes with Skechers in the sports footwear market. Nike has a sizable advantage when it comes to economies of scale and financial resources.

• Adidas AG (ADDYY): 2007 revenues - $13.7 billion. The adidas Group competes in the overall sporting goods market. It makes sports footwear, apparel, accessories, and equipment. Skechers competes with the adidas Group via the group's two brands adidas and Reebok. Like Nike, the adidas Group also has big advantages in economics of scale and financial resources.

• Puma AG: 2007 revenues - $3.8 billion. Puma AG is a Germany-based competitor in the sporting goods market, designing and producing sports footwear, apparel, accessories, and equipment. It operates through two brands, Puma and Tretorn.^[18]

• Wolverine World Wide (WWW): 2007 revenues - $1.2 billion. Wolverine World Wide is a maker of casual footwear, rugged footwear (outdoor and work), and a limited line of accessories. It operates through several brands including Wolverine, Patagonia, and Hush Puppies. The company also has tanning and pig-skin procurement operations.^[19]

• Crocs (CROX): 2007 revenues - $847.4 million. Crocs manufactures casual footwear for men, women, and children. In addition to operating in the US, Crocs sells its products in more than 90 countries worldwide. In addition to selling to domestic and international customers, the company also sells directly to the consumer via company-owned retail stores and its website. Crocs has diversified its product lines through company acquisitions.

The chart below shows that Skechers holds nearly 5% of the global athletic footwear market.

Commerzbank Equity Research^[20]

[edit] References

1. ↑ Google Finance - SKX
2. ↑ The Motley Fool, "Stock of the Week: Skechers"
3. ↑ Reuters.com, "Skechers USA Inc."
4. ↑ Skechers 10-K pg. 25, "Management's Discussion and Analysis of Financial Condition and Results of Operations"
5. ↑ Skechers 10-K pg. 25, "Outlook for 2008"
6. ↑ Skechers 10-K pg.15, "Risk Factors"
7. ↑ Skechers 10-K pg. 2, "Business"
8. ↑ The Motley Food, "Stock of the Week: Skechers"
9. ↑ Skechers 10-K pg. 24, "Management's Discussion and Analysis of Financial Condition and Results of Operation"
10. ↑ Skechers 10-K pg. 58, "Segment Information"
11. ↑ Reuters.com, "Skechers USA Inc."
12. ↑ Google Finance, "Financial Statements for Skechers USA"
13. ↑ Skechers 10-K pg. 58, "Financial Statements and Supplementary Data"
14. ↑ Skechers 10-K pg.15, "Risk Factors"
15. ↑ Skechers 10-K pg. 59, "Notes to Consolidated Financial Statements"
16. ↑ Skechers 10-K pg. 19, "Risk Factors"
17. ↑ Yahoo! Finance, "Should You Buy It? Step Into Skechers"
18. ↑ Google Finance, "Puma AG Rudolf Dassler Sport"
19. ↑ Google Finance, "Wolverine World Wide"
20. ↑ Christoph Dolleschal, "adidas," Equity Research, Commerzbank, 28 February 2008