SKX. [Briefing.Com] Market Report -- Story Stocks (SKX, FINL, FTS, SCVL)
September 10, 2002 2:35:00 PM ET
Skechers (SKX) 10.36 -1.82: Several weeks ago, Briefing.com came to the defense of Skechers noting that the decision by Foot Locker to start carrying more moderately priced merchandise should be seen as a positive for SKX, rather than a negative for the entire group... We also cited the stock's relative valuations, impressive growth rates and upward guidance. However, in the weeks since that report several major footwear resellers -- Finish Line (FINL), Footstar (FTS) and Shoe Carnival (SCVL) -- were forced to guide estimates lower due to weak summer/back-to-school sales trends... These warnings were a sign that the weakness in the shoe market was widespread and not just restricted to the higher-priced brands, as earlier speculated. Unfortunately, Briefing.com didn't heed this warning quickly enough as Skechers issued its own warning this morning... Company slashed its Q3 earnings forecast to a range of $0.30-$0.35 v. consensus estimate of $0.41... Revenue estimates were also cut substantially, from a consensus of $295 mln to $245-$255 mln, or 11%-15% below year-ago levels... Management attributed the bearish revision to "a generally weak domestic retail sales environment within the apparel and footwear sectors." Estimates for Q4 were also brought down substantially ($0.10 to $0.14 from consensus of $0.26), as company sees little relief in the retail environment through the key holiday season. This is a big miss for a company that had for many quarters running reported sizable year/year jumps in sales and earnings... The magnitude of the warning, combined with the quick 40% drop in the stock price, will make growth investors think twice before coming back to the stock. However, before you write this stock off completely, Briefing.com notes that there is a positive to this story and that is that the miss is less about execution failure, than it is about deteriorating macro-conditions within the industry/sector... In other words, as consumer spending in the footwear industry regains momentum SKX will be in well positioned to benefit... Company quickly created a well-recognized and well-liked brand in the moderately priced segment of the market... Even using reduced estimates, revenues for the current fiscal year will approach the $1bln mark. Though it's probably wise to assume slower growth going forward, as SKX moves from a early-growth to maturity stage, the drop in market-cap resulting from today's loss leaves the stock selling at about 0.42x projected FY02 sales - well below the industry/market rates... SKX's forward p/e of 7.1x, again using today's reduced estimates, also suggests that the bad news is more than priced in. While investors may want to wait for the dust to settle in the days and weeks to come before (re)considering the long-side of the stock, SKX's valuations and market position make it a compelling "bargain hunting" opportunity for next year. -- Robert Walberg, Briefing.com
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