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Can Skechers Stock Keep Going After Last Week's 10% Pop?

By Rick Munarriz – Oct 31, 2016 at 11:11AM

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The footwear maker bounces back after a rough third quarter, but the stock is still trading 31% lower in 2016.

Image source: Skechers.

There's some bounce to the soles of some of Skechers(SKX -0.99%) shoes, and apparently the same can be said about the stock. Shares of the footwear maker moved 9.6% higher last week, making back some of the ground that it lost a week earlier after putting up disappointing quarterly results

There were no analysts stepping up to upgrade the stock following its earnings-related stumble. There was also no news out of Skechers itself, outside of an announcement on Thursday that its shoe line for kids had been awarded "Best Footwear Collection 2016" by children's fashion trade magazine Earnshaw's. Accolades in industry-specific periodicals are nice to have, but obviously this isn't going to be a stock mover.

Skechers bounced back simply because investors -- no doubt many of them retail investors -- simply felt opportunistic. The stock is trading 31% lower so far in 2016, and that's including last week's nearly 10% move higher. Getting the stock for nearly a third less than they would have had to shell out when the year began can be tempting, but it's important to assess if this is the same investment that it was when the year began. 

Taking the long road back

Last week's bounce is a welcome sight for stakeholders, but the stock has still fallen 9.3% through the past six trading days. The catalyst was the walking footwear giant's unsettling third quarter results, and it was a pretty challenging financial report.

Net sales climbed just 10% higher for the period, and earnings missed Wall Street targets for the fourth time in the past five quarters. The dagger was its guidance. The $710 million to $735 million in net sales that Skechers is eyeing for the holiday quarter implies a 2.3% decrease on the low end and a 1.1% uptick on the high end. Even if it lands at the high end of its range it would be Skechers' weakest top-line growth in more than four years. 

Revenue of $942.4 million for Skechers' third quarter was just 10% ahead of the prior year, and it also fell short of its earlier guidance range of $950 million to $975 million. A decline in its domestic wholesale business ate into growth at the retail level, something that also happened during the second quarter. Earnings of $0.42 a share fell short of Wall Street's profit target, something that has happened in four of the past five quarters.  

As bad as the third quarter may have been, guidance was somehow even worse. Skechers is now forecasting just $710 million to $735 million in net sales for the current quarter, and at the midpoint it would represent less than the $726.6 million that it served up during last year's holiday quarter. You have to go all the way back to the second quarter of 2012 to find the last time that Skechers didn't manage to post year-over-year growth on the top line, according to S&P Global Market Intelligence data. 

The cruel kicker here is that even the uninspiring guidance that Skechers offered up may prove to be optimistic. Skechers fell short of even the low end of the net sales guidance it provided three months earlier. The stock is coming off of back-to-back quarters of big hits after disappointing reports, so momentum is not in the optimist's corner. With its wholesale operations going the wrong way and retail sales growth slowing it's hard to argue that the fundamentals are the same as they were when the stock began the year perched just above $30.  

Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Skechers. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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