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Skechers Is the Best Bet on the International Appeal of Athleisure

By Nicholas Rossolillo - Dec 16, 2017 at 10:35AM

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The shoemaker had a knockout third quarter, with much of its success coming from international markets.

Skechers (SKX -0.81%) stock has been hot since reporting third-quarter results that handily beat expectations. The quirky shoe company long-known for affordable casual footwear has been getting trendier, and it is quickly making a name for itself overseas. As a result, this former underdog may now be the best bet on American shoe exports.

What Skechers is cooking

Total sales have been growing by double digits at Skechers for years, and through the rate of growth has been slowing, 2017's numbers are still very compelling. Total growth was at 16.2% year-over-year in the third quarter.

A bar chart showing Skechers annual revenue growth. Over 30% in 2015, 13% in 2016, 9% in Q1 2017, and over 16% in the last two quarters.

Chart by the author. Data source: Skechers quarterly earnings reports.

While sales in the U.S. contributed 1.4% in the last quarter, the real story has been Skechers' aggressive moves in its international business. New retail store openings and several joint venture businesses with distributors in Asia have accelerated growth. Management said selling was particularly good in China, the United Kingdom, and mainland Europe.

A bar chart showing Skechers international sales growth and percent international sales in relation to total sales. International sales have been in the double digits for years, and this year the company is hitting 50% of sales from international markets.

Chart by the author. Data source: Skechers quarterly earnings reports.

Because of a 25.7% surge in wholesale, revenue from overseas was over half of the companywide total in the third quarter. Management stated several years ago that in the long run, they were aiming to receive at least half of revenues from international operations, and 2017 is well on its way to being the first year that happens.

Outpacing its larger rivals

Skechers isn't the only U.S. shoemaker exporting its wares. World shoe king Nike (NKE -1.00%) trail blazed the path, helping to make American athletic goods ubiquitous around the globe. It's a path that others like Under Armour are taking as well.  

A young woman sitting on a couch wearing a pair of red Skechers shoes.

Image source: Skechers.

Nike already makes a little over half of its sales overseas, so it's no surprise that growth in that segment has slowed. International sales during the last quarter were up 5.2%, not much but still respectable for a company that sells almost 10 times more than Skechers does.

Under Armour grew foreign sales 35% in the last quarter. However, Under Armour is late getting to the party. Only 22% of sales were made outside of the U.S. in the last quarter.

While all three shoe companies are having success with their export business, the problem is that Nike and Under Armour's international growth were both completely offset by sales declines here in the U.S. That made for a 0% revenue growth quarter for Nike, and in Under Armour's case it caused overall revenue to contract 5%.

Portents of things to come?

Athleisure -- athletic wear as fashion outside of the gym -- has become mainstream in the U.S. If American fashion continues to get adopted around the globe, that will benefit all three companies.

However, now that athleisure is mainstream here at home, affordable options like Skechers are getting a bump. That showed up in the company's positive stateside figures last quarter, while more expensive competitors are starting to go flat. That could be a forecast of the trend internationally, too. A more affordable athletic shoe could hold more appeal than expensive options.

Only time will tell if this plays out, but as of right now the numbers say the former underdog has the upper hand. For investors wanting to bet on U.S. shoes outside of the U.S., Skechers is the ticket right now.

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Stocks Mentioned

Skechers U.S.A., Inc. Stock Quote
Skechers U.S.A., Inc.
SKX
$35.29 (-0.81%) $0.29
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$101.18 (-1.00%) $-1.02
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UAA
$8.50 (2.04%) $0.17
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UA
$7.67 (1.19%) $0.09

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